Forum Replies Created
Hybrid Discretionary Trust or just Hybrid Trust, although it won’t be of use with your current property, but for future investments it can have a similar outcome to what you are suggesting.
I like your thinking though, but unfortunately, it doesn’t really matter what the property is doing, private or investment, it matters what the loan funds are used for, ie if the funds are used in the property that is earning income then it’s ok, but if you use those funds for private/non income earning purposes, then no deduction.
Have you asked your accountant if he has any ideas, or maybe another accountant in his firm that might suit your expectations better? I would think that having two accountants would not make sense as one would be advising on one set of circumstances whilst not knowing your complete picture, so you can’t expect to get the best out of them. Maybe if one accountant was a specialist in a prticular area you may use them for that particular advice, but why not use them for everything?
As an accountant myself, I would find it very difficult to be confident that I was doing my best for you if I wasn’t aware of your complete story.
Hi Chris,
That would be nice, but unfortunately the tax deductibility of interest is based on what the funds are used for, and in this case you are still using the actual funds for something private.
Another angle, though is that if you used a HDT you can effectively borrow funds through the trust to redeem your units and so claim a tax deduction on the interest, even though you use the funds for whatever purpose.
ASB Alpine,
Super fund tax is a flat 15%.
Before you go putting the property into your smsf be aware of limitations to transactions between a smsf and related parties, ie yourself. Also, do you own the share of the property in your personal names or through a unit trust? You may already be going against the in-house asset rules?
Once the property is in the smsf you can’t get it or it’s funds out until preservation age, maybe 65?
An undeduced contribution is not a tax deduction to you, so why would you do it? How long do you have until you can access your super?
There will probably be CGT implications of transferring your share into the SMSF.
Andrew,
The hybrid trust structure is ideal for your situation, gives you the flexibility to gain maximum tax advantage of negative gearing now, and minimum tax liability of capital gains later.
Expect between $800 & $1,500 for the trust plus up to $1,500 for a corporate trustee.
The ATO previously reduced the cost base by 2.5% per year whether or not you claimed it, if it was applicable. But they have recently come to sense and if you haven’t claimed it due to not having sufficient information to base a claim then it won’t reduce your cost base. If you haven’t claimed it, but are eligible to then I would suggest that you have your past returns amended where possible, to include the building write off (usually 2.5%), as this can be a significant booster to your refunds.
With regard to the accountant not knowing what a depreciation report is, I would say that they obviously haven’t had much to do with investment property tax returns, and so not much experience at all.
Start shopping around to find someone who will suit what your needs and expectations are, as it will prove to be a very sound investment if you get an accountant who is both knowledgable and also interested in your situation.
A very general rule is that the profit should pay back goodwill within 3 years, It sounds OK but what is the $84 k profit made up of, why are they selling, is the profit sustainable, etc
You are best to see an accountant for advice, they shouldn’t charge more than a couple of hundred for a basic valuation
As an accountant who is presently establishing my own sole practice I must say that the posts are encouraging for me, in that I can’t believe how shallow some firms are, so I find it really easy to provide outstanding service at reasonable prices. This is one of the main reasons that I decided to go out on my own, clients are getting charged at partner rates, for junior work, accountants are not providing value, just compliance work, how boring! Much of accounting is boring but the area that is exciting is being able to add value to a client, make a clients tax life easier, getting that extra tax refund, making sure that they understand what they are doing, and how to do it better.
In aggreeance with other postst that you need to shop araound to find someone that suits what you are looking for. Not every accountant will suit every client, accountants and clients have different points of view, risk levels, etc. So it is a task, but shop around and once you’ve got the one you want stick with them.
One last thing, communicate communicate communicate. This will reduce/eleiminate any future disagreements.
Unfortunately you can’t claim a tax deduction as at the time you don’t have a source of income aginst that deduction, but forget about the tax deduction, think about the additional profits that you’ll be making that you wouldn’t have without the books or coaching.
It’s a small cost to gain a much larger benefit, once you’ve learnt the investment principles then you will gain from these for the rest of your life.
Hi RL,
I agree with John’s comments and advice except that I would recommend a trust if you are serious about building and protecting your property portfolio. As an accountant you may think that I am just trying to sell a structure, but once you see the benefits it is a no brainer in most cases. But as with most things, your personal situation will dictate the most appropriate structure, ie, married? children? income? other investments?
My first advice is to read read read, as much as you can without going too overboard so that you can ask your accountant the right questions, and importantly so that you can understand and benefit from the implications of your structure. As a guide, you could expect to pay anything from $800 to $1,500 for a family trust, $1,500 to $2,500 for a hybrid trust and $1,000 to $1,500 for a company. Your annual accounting fees could also range from $500 to $2,000.
If I can be of any assistance, please email me and I’d be glad to help you out, even if only for information.
Ross
Depending on your marginal tax rate as to the benefit to you, but generally a well structured salary package will be to your benefit, although not spectacular, especially with the lower tax rates now.
I am an accountant and tax agent. D1-D5 are only for work related (ie employee related) expenses. The books should go as an expense in the rental schedule, which is then apportioned between the owners. Whether or not you apportion the books between the properties doesn’t matter as the end result is the same. Usually a property is owned 50-50 with your partner and so all income & expenses are also split 50-50. This can be gotten around through an effective salary sacrifice reimbursement agreement with your employer. You could argue that you personally incurred the cost and not the other partner, if so you would put the claim at Item 20U – Other Rental Deductions
Whoever is on the highest marginal tax rate should salary package the interest and any other rental property expenses, as they will get the best benefit, then just the income is split. Otherwise the only benefit is to reduce your tax withheld from your pay.
Another salary packagin tip. Package a laptop, and use it 100% for managing the renatl property, then you get the salary package deduction and then depreciate the laptop at 40%. Effectively you may almost get the computer for nothing, depending on your tax rate and if you have kids.
Michelle,
To start off, a simple company/trust structure would be sufficient. Then when you are more comfortable with the operation etc, and wanting to buy more properties, then you can look at additional trusts. There is no real tax benefit of having multiple trusts, it’s more of an asset protection issue, diversifying risk. But as with everything, you should speak with an accountant that you are comfortable with and confident in to ensure that your setup is the most suitable. Although you can just buy the trust/company online you have very little tech support or comeback if you do the wrong thing. Better to spend the money upfront for some good advice.
You can email me [email protected] for any more detailed info/advice.
I can suggest a great accountant for you if you’d like……..me, or I know of some others that may suit also.
