I know nothing about wrapping.
I’m curious to know who claims the outgoings, depreciation in particular, as a cost?
Scott
Scott,
As wrapped properties are trading stock you cannot claim building depreciation. Other expenses such as rates and insurance are deductible to you but as the wrappee would normally reimburse you for these expenses the reimbursement is income to you so the net effect is nil in your tax return. The wrappee is not entitled to any tax deductions as the expenses are incurred in relation to their home.Thanks Julia.
I might add that I’m not about to start wrapping, but the question was asked by one of our clients and I promised to look into it.
So based on this, you would think that the ATO would be pro wrapping as it eliminates the non cost deduction of depreciation being claimed on what is effectively an investment property !!
Another query Julia, how is CGT liability viewed by the ATO once a wrapee is in place ??
Dos this trigger the CGT expense since you will now have a contract in place with the wrapee even though your profit may not be forthcoming for a number of years ?
KP
kp,
I saw something that may answer your questions on the ATO website. Do a search under either vendor finance, instalment sales, instalment contracts. This should produce a list of test cases etc and i know one of them will address you question. I think it mentioned CG is assessable once the title is handed over or you are cashed out of the deal. For the record i don’t wrap, no time for that at the moment. But wish i did 3 years ago
As the house is trading stock CGT does not apply. Normal income tax applies at the time of settlement.
The wrappee is considered to have taken up ownership for CGT purposes at the time the wrap is entered into. CGT event B1 happens when someone has the right to the use and enjoyment of an asset and there is an agreement that the title will eventually pass to that person, Section 104-15.Thanks for both your replies,
So by “settlement” do you mean when the wrp contract is enterd into, or when the wrapee finalises the contract (pays it out or re finances it)
Also, when is stamp duty payable by the wrapee triggered ? At teh start of the wrap contract or only when the title is transferred into the name of the wrpee ?KP
Kp,
Settlement is when the title to the property passes to the wrappee. I have no professional expertise regarding stamp duty and it varies between states so I will leave that one for someone else to answer.Kp
As Julia rightly points out the Settlement date is the date in which the title passes to the wrappee.
The date the transfer is executed and normally the date the wrapper moves into the property is known as the Possession date.
Stamp Duty (certainly in Qld) is triggered when the Transfer document Form 1 is stamped and that is prior to possession.
Cheers Richard
richard at fhog.com.au
http://www.fhog.com.auThere is no such thing as a problem.
Just a solution waiting to be foundRichard Taylor | Australia's leading private lender
Thanks for the info Richard.
I understand stamp duty for the wrapper is triggered prior to settlement.
I meant as far a the wrapee is concerned, when do they pay stamp duty…on entering into the terms contract, or when they finalise the terms contract or refinance(ie.. when their name goes on the title deed)
Thanks,
KPCheck with the relevant revenue office in each state but I am pretty sure that in NSW Stamp Duty is payable within 30 days of a contract being signed (or a similar timeframe).
In Victoria Stamp Duty is not payable until the wrap purchaser transfers the properties title into their own name. Some people see this as a chance to defer, maybe for 30 years their SD obligation.
Hope this helps – but as always don’t believe everything you read here on the forum… Please go and check it out for yourself…[cap]
KP
If you re-read my answer to your post you will note that the reference to Stamp Duty refer to the wrappee.
Cheers Richard
richard at fhog.com.au
http://www.fhog.com.auThere is no such thing as a problem.
Just a solution waiting to be foundRichard Taylor | Australia's leading private lender
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