Forum Replies Created
It’s 12 months from land purchase contract date to sale contract date.
Not sure what you’re are talking about with GST, as GST is only applicable if you’re carrying on an enterprise, and also what is the 5 year period to not pay GST?
Hi Paul,
Unfortunately you can’t salary sacrifice your HECS debt without incurring FBT at 46.5%.
Non-profit organisations and charities have exemptions from FBT up to about either $7500 or $15,000 for charities, so they can salary package anything up to these limits without paying FBT.
Everyone else is subject to FBT at the full rate, except for things that are tax deductible to you or are concessionally taxed under FBT, like cars and laptops.
Even though the FBT laws don’t limit what can be salary sacrificed, most companies/employers either don’t offer salary packaging or only in limited cases, like super, due to the extra admin required. This actually doesn’t make sense as many accounting firms offer full salary packaging services which take over the complete admin of the salary packaging, with no cost to the employer, and a small cost to the employee, which is tax deductible.
This is also a major incentive to be able to be employed through your own company/trust so that you can access these FBT loopholes, even if you are subject to the Personal Services rules.
FBT is actually one of the major areas of tax law that can be utilised by employees to gain a substantial tax advantage on items that are not normally deductible, but the ATO has been very successful in portraying FBT as too complicated and scaring off employers.
I think people also forget that when they do retire they may still have 20-30 years or so until they depart this world. That is a long time, so retiring may be from the fulltime workforce, but that doesn’t mean that you are retiring from life or from investing, if anything you’ll have more time to concentrate on your investments and hopefully grow them to increase your standard of retirement
I agree that the 27% is maybe the average tax rate on Summersby’s current income, but the reason that I queried the 27% tax rate is that the average tax rate is really irrelevant, because it only matters how the next dollar is going to be taxed , or how much of a tax benefit you’ll get, which is based on the marginal tax rate, 16.5%, 31.5%, 41.5% or 46.5%.
If Summersby is paying average tax of 27% then his/her income must be about $90k, which is in the 41.5% marginal tax bracket, a big difference to 27%, 14.5% difference in the tax effect of additional income or negative gearing.
Although tax should not be a basis for making an investment decision, it certainly needs to be understod how it does impact your investments so that you can take advantage or avoid any unwanted surprises.
Summersky,
as Richard noted, remember that super is only a regulated tax structure. You can usually invest in exactly the same asset within super or outside, although super is much more restrictive, ie not borrowing.
Obviously depending on your age, income, family, risk tolerance, etc, will help determine which asset class to invest in and how to do so the most tax effectively and with appropriate asset protection.
Also, I’m not sure how you can be on the 27% tax rate as the scales are 16.5%, 31.5%, 41.5% & 46.5%, I would assume that you are on the 31.5% rate.
The reduction in marginal tax rates and increase in tax scales has also made negative gearing less attractive and effective, whether through property or shares, so you should look at what your overall investment goals are first, then do as much research yourself that you can, and then seek out personal professional investment advice.
Sunny1,
If you have a profit of $50,000 you will be paying tax of $11,010, due to the progressive tax scales.
To reduce this to nil$ you will need to reduce your taxable income to $10,000. You will need a $51,667 deductible super contribution to achieve this as only the first $5000 is fully deductible, and then 75% of any amounts above that, to your age based limit.
Also remember that the super fund will pay 15% contributions tax on the $51,667 which is $7750, so the real tax savings is only $3260.
As you may be aware, the super rules are about to change dramatically from 1 July 2007, when you’ll be able to withdraw your super tax free if you are entitled to withdraw it in the first place. So assuming that you can withdraw the funds then your strategy will work, and is quite legal, but you will only be saving $3260 in tax.
Kuade,
There is no FBT, because the salary package is “otherwise deductible”. So no effect on anything except your tax, and it may also help with avoiding the medicare surcharge if you don’t have health insurance.
Kuade,
If your employer allows salary packaging, you can salary package the expenses effectively claiming all cash deductions in your name, and then the remaining profit is split 50/50
Bricks and mortar depreciate, land appreciates
But this doesn’t take into account irrational markets in action,
Be careful of buying into unit developments
6% average compound growth will result in your investment value being 2.4 times cost, so it sounds ok, but you can get 6.5% in the bank
just some thoughts
Peter,
I can see where you’re coming from but, you should be a little more positive and optimistic, as what you beleive is what you’ll become.
Markets, whether they’re property, shares, bonds, interest rates, whatever run in cycles, so take a step back and look at what is happening, do some historical research and you’ll be able to see where to invest next, and soon enough your house will become reachable. Have a look at http://www.ezycast.com/index.cfm?type=education&article=economic_cycles
Good points there Terry, and I guess as with developments, the money is made in the development itself
I recently went to a seminar on a new storage development in our area, basically they were offering a yield of about 7%, guaranteed for the first year, with an option to then either take over management or use the on-site manager. They also claimed that they had a major bank that would take security over the storage unit.
Do any of the brokers have any experience lending against storage units?
I was impressed with the design of the facility, and I do think that storage is a viable investment due to the growing population, with smaller yards, etc, and capital growth is definetly possible, but there isn’t much information to compare.
As a form of diversification I don’t really have a problem with them, as you can get into a storage unit for well under $100k,
But, obviously the major risk is occupancy & capital growth if the market becomes over supplied by other storage developments.
If you expect to get a reasonable size tax refund, you can lodge a PAYG Tax Variation with the ATO, to reduce the amount of tax withheld from your wage during the year, ie if you will get a refund of about $5000 then you can have your wages tax withheld reduced by about $96pw,
You’re much better off having more cash now than waiting until your tax return is lodged. If you’ve got $5000 tied up in a tax refund earning no interest, why would you wait up to 12 months to get access to it?
I can email you the form if you want.
redwing,
I’m assuming that the contract is in the trust name, otherwise, yes it is too late unless the contract can be changed before settlement.
The loan situation is a seperate issue to ownership of the property.
If you’re negative gearing, what about a Tax Variation form, to improve your cashflow
Do you have a good tax accountant that is interested in what you’re doing?
Do you have an investment plan?Terry,
the fact that the loan is in two names doesn’t impact on the CGT, Asset protection, or Estate planning as the property is still owned by the trust,
Why is that just because Johnny Howard starts talking about something, then all of a sudden it is a catastrophe and we must do something now. I believe strongly that renewable energy is the only way to go, if not just to reduce that choking pollution in our capital cities, we’ll all be much healthier.
Solar power hasn’t been taken up by government because the oil and coal companies have such power over politicians, it’s as simple as that. But whether or not the globe is warming due to human contributions? Who knows, but I do beleive that the current drought is not actually unusual for Australia. Average rainfall in Victoria in the last few years is actually only marginally (10%) below average, and the time of lowest rainfall since measurement started, was actually around the time of the great depression. There weren’t any near the amount of cars and other emission producers at that time. So how can the drought be linked to global warming, I think it is just politically convenient. Maybe the government is just trying to deflect attention from it’s own problems at the moment ie AWB, Iraq invasion, etc
No problem Andrew, just draw up an agreement with your wife to lend her 50% of the loan from her, so that way you practically have the complete loan. Your wife has an interest expense to the bank but and equal amount of interest income from you. The ATO have accepted that a husband and wife may enter into a joint loan agreement even though only one party has the investment income.
Smifter, I would agree with you that your investment position has only increased by $50k, the other $50k debt reduction is from cash paid off the loan, so whether you pay it off the loan or invest that cash you’ll still have $50k more than you had at the start. So really, it’s only the property value increase that has increased your net wealth.
Thanks, Richard for clarifying my comments, although the transitional rules do expire in the near future, 2008 is it?
