Actually I remember Steve canvassing this area briefly in one of his books. So am I to understand that if I (using eeshole’s example) sell a property for $150,000 that I purchased for $100,000 (forgetting the 12 month 50% tax allowance for a moment) then I pay tax on the $50000 profit. If in the meantime I have obtained depreciation allowances for tax purposes of $10000, will I then pay CGT on $60000 ($50000 profit plus $10000 depreciation already claimed on tax)??
markk
Happy Hunting
http://www.kentscollections.comOriginally posted by Benny:As “Debtdogg” said
That being said, if you do not have another income against which you can claim deductions then surely if income (rent) less expenses (rates, interest etc) gives you a negative figure you have negative gearing.Probably the most important thing to understand is this:-
If you are positive geared, then a positive cashflow is a given – your expenses are all covered, with an amount left over for your pocket. Any Tax deductions will only serve to increase that cashflow.
If you are negative geared, it’s possible to still have a positive cashflow, BUT ONLY if your deductions give you a Tax refund big enough to offset the losses that you would otherwise have.
Lose your job, and you will have paid no Tax, thus no refund, resulting in a negative cashflow because of the negative gearing.
Better?
Benny
I understand and agree.
Cashflow and gearing are two different things.
If you have too many properties that are positively geared (marginal or no cash on cash return) but some ROI through rent + tax deductions, then, it will reach a “critical mass” (As Steve Says) whereby you have to work harder therefore earning more tax to claim the same or similar deductions. Or it will reach a point where your tax deductions arent claimable because you are claiming them all. Then no more tax deductions allowed on additional properties.
Depending on your interest rates, and rate of pay from your employer and a host of other factors, you could only afford so positive geared properties.
(This is my understanding, because I beleive that there is a difference between positive gearing and positive cashflow)??
as far as i know there is none, positive cashflow means its cashflow positive after expenses and positve geared is opposite to negative geared (taking money from you)giving you money so yea i think thats all there is to it, could be wrong if i am let me know
chris
Bj nailed it and chris is sorta right. But let’s simplify it further. There are only two types of properties, positive cashflow ones and ‘other’. Positive cashflow ones put money in your pocket after expenses. All properties that don’t are negatively geared. I agree that positively geared properties SHOULD be a synonym for positive cashflow, but too often it is used (incorrectly I reckon) to name a property which is negatively geared but saves you what you lost in tax so it appears to break even on paper. But this is still a negatively geared property, fair and square.
And so it comes down to a question of semantics. I guess if you stick to positive cashflow you can’t go wrong. Anything else… isn’t positive cashflow.
Guys,
I posted an answer to this in another similar thread, but will do so briefly again here. My understanding is that they are fundamentally different and it isn’t just a question of semantics.
Once you realise that negative gearing (NG) can give you positive cash flow (PCF) then it all becomes clear…
Basically, negative gearing means that your on paper profit is negative because you’ve allowed for non-cash deductions such as depreciation. For this reason you can claim this “loss” with the government for tax relief. This is negative gearing.
Now, if that tax relief is sufficient then you can turn your on paper loss in to a positive cash flow outcome. Depreciation has no cash flow impact so once you get that nice tax cheque you might well be comfortably CFP from your NG property.
I’m a big advocate of negative gearing so that i can get some tax relief, but I like my properties to be neutral or cash flow positive. (Also, the sort of properties I like are more geared to capital gain as my primary IRR earner over CF so tend to be neutral on cash flow and often NG).
Hope that helps clear up the difference.
Cheers,
Michael.Originally posted by MiniMogul:In NZ you can depreciate all properties, no matter how old or new. Another great reason to invest there, apart from no stamp duty, no cap gains tax,
OT, but I’d watch this one closely MiniMogul. NZ have already started to clamp down on foreigners withdrawing CG profits from the country without being taxed, and rumour has it that further tightening (including investment property CGT) will shortly be announced.
Cheers, F.[cowboy2]Hi foundation,
as far as
NZ have already started to clamp down on foreigners withdrawing CG profits from the country without being taxedi’m not sure what you mean ? Australia has a tax treaty with NZ. If an aussie makes a capital gain in NZ then they are required to declare it on their Australian Tax return. There has been no change to that rule (as far as i’m aware).
rumour has it that further tightening (including investment property CGT) will shortly be announcedyou are right this idea gets thrown around from time to time but i’d be suprised if there was any change, NZ at the moment welcomes investment dollars and any change will have a negative impact on the economy; an economy that will start to see the effect of a very high currency.
regards westan
USA information evenings in Melb, Syd and Brisbane in early April, email me for more info. We find cash positive deals showing 15-25% Returns in the USA email me at [email protected] to join our database
Hi Westan,
Changes… or a foothold for a CGT?
Scrap his plans to liberalise foreign investment laws and instead bring in tighter controls, both to limit speculation on property and to focus the inflow of foreign capital on new, productive investment.Look at introducing a capital gains tax on properties other than the family home. This would help to deflate the property boom but more importantly would give the Reserve Bank the flexibility to drop the official cash rate.Yes, they welcome investment dollars, but not if the only result is unnaffordable housing. Real estate speculation does not sustainably contribute anything productive to the economy, and NZers are questioning the value of foreign investment in their houses.
All 3rd hand of course (friend’s brother works in taxation in NZ).
CHeers, F.[cowboy2]
Hi foundation
interesating story those and ones i hadn’t seen, i haven’t had the luxury of time to read the paper recently. From my understanding of the first story it applies to foreign companies that move off shore
(that is, move their incorporation and head office offshore) would be treated as if they had been liquidated.. i don’t think that will alter the situation for investor in real estate (maybe have a word to your contact at the tax office).
In regards to the second story the Greens party are not a big player in the NZ political scene, but they aren’t the only ones saying similiar things.regards westan
USA information evenings in Melb, Syd and Brisbane in early April, email me for more info. We find cash positive deals showing 15-25% Returns in the USA email me at [email protected] to join our database
Sorry to jump in on the rational discussion on NZ, but I couldn’t help but add to the initial hilarious discussion on positive/negative gearing/cashflow. And felt compelled to try to define it.
Positive cashflow may be when the weekly income minus the weekly expenses results in a positive but this could possibly be considered negative cashflow if the current market value of the property drops or has not risen above purchase costs yet or even if you were at the mercy of the average variable interest rate of 10% for the last 20 years or so. So positive could be negative or positive depending on how you look at it.
Negative cashflow could be when the weekly income minus the weekly expenses results in a loss but could possibly be considered positive if the market value of the property has increased or is increasing at a rate greater than the expenses. so, like positive, negative can also be negative or positive depending on how you look at it.
Positive Gearing could be the same as positive cashflow in some circumstances and in others it may not.As is negative gearing. Either and/or neither may or may not be the same as another.
Before and after tax is simply that, but could be positive or negative before or after.
So positive could be negative and negative could be positive, But I am positive that it would be negative to define any formula whether negative or positive as being more positive than another as positively hilarious. And that then would make it positive.
Even an overall negative could be a positive.
HA!
(Is your glass half empty or half full?)
Live, Learn and GrowLifexperience
perfectly clear analysis esshole. thanks.
Neo and others.
I detect sarcasm (which is strange as I thought I had sent that detecting part of my brain into sleep mode years ago).
But humour aside and to get technical , they are all different and separate components of a property deal.
In some deals the gearing and cashflow are the same (ie: positive)
In other deals the gearing and cashflow are different(ie: one positive and the other negative)
So my interpretation of the definition of these different and interchangeable components are:
Gearing is whether you need to supplement the holding expenses of an asset.(ie:A deal could be neg geared if it cost you $50 out of your pocket each week but that same deal could be positive geared after tax refunds at the end of the year)
Cashflow is where the money flows in a period of time. (into or out of ya pocket each week for instance)
Positive/Negative can describe either.
And whether it is positive or negative will depend on whether you look at it before tax or after tax or whether you have a tax form filled out that takes less tax out of your pay each week or whether you take into account paper gains such as increased market value or a hundred other things.
er…… cheers[
]
Live, Learn and GrowLifexperience
“Is your glass half empty or half full?” lifeX
hrmm lets say a full cup equals 1 and an empty cup equals 0.
half of 1 = .5..but half of 0 = 0 so therefore the glass must be half fullbwendan,
i can’t argue with illogic. But, yeah, sure, why don’t we all just say that a plus and a minus and multiplying are all the same thing.
….very clever b
Live, Learn and GrowLifexperience
Re; No CGT
“foreigners”
Yes you are right foreigners do have to pay CGT as do NZ residents who trade. However. NZ residents in certain circumstances don’t. Such as if you were intending to buy and hold. i,e, hold it for a year or more and you should be OK. Now how is a non-resident a resident?
Well, that is a question you should ask a NZ accountant, but the answer includes the word ‘structure’!Unfortunately you will have to go for FIRSTHAND advice as I did, second hand (me telling you what the accountant said) or thirdhand (friend of a friend who works in tax) doesn’t cut it.
You need professional advice given for your personal situation. However what I wrote originally is true.
Re; CF+ve versus ‘other’, well, stop worrying about the difference and go buy something. Preferably one that breaks even, OKAY!
cheers-
Mini
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