Hi Terry
Im just a little confused sorry Terry.
So your saying that if the trust is making a lost I have to put funds into it, these funds cover the loss so the trust is at ‘Nil’, correct?
Now the trust can claim the deductions such as depreciation and investment cost but since the trust has no income it is considered more loss, yes?
Then these losses will be carried on to the next year, but if the trust is still not making any income does that mean I will have to further gift funds to the trust to cover the losses of the previous year and the current year?
I think I might be a bit more then a little confused.Sorry if im going around in a circle
But I appreciate your expertiseThank you
JohnHi John
eg may help.
Your trust buys a property for $100,000
Rent is $5,000 pa
Costs are $8,000 pa (interest, rates etc)
Depreciation = $2,000 paTaxable income is ($5,000) (loss).
But depreciation is a non cash deduction so the cashflow is only ($3,000). So you will need to inject $3,000 to keep the trust going.
Year 2
You found an extra bedroom you didn't know was there and rent jumps to $10,000
Costs $8000
Depreciation $2000
Net taxable income is Nil
You will also carry forward previous year's loss so Net income is ($5000)Year 3
You increase rent to $15,000
Costs $8,000
Depreciation $2,000
Net income is $5,000 profit.
But you still have that loss from last year so Net income = NilYear 4+
taxable income is a profit as rents increase and losses are used.(keep in mind I am not an accountant!)
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Let me rejig it for more losses
eg
Your trust buys a property for $100,000
Rent is $5,000 pa
Costs are $8,000 pa (interest, rates etc)
Depreciation = $2,000 paTaxable income is ($5,000) (loss).
But depreciation is a non cash deduction so the cashflow is only ($3,000). So you will need to inject $3,000 to keep the trust going.
Year 2
Rent is $6,000 pa
Costs $8,000
Depreciation is $2,000
Taxable income is $6,000 – $8000 – $2000 = ($4000) loss
But the cost is only Rent – Costs = ($2000)
So you only need to inject $2000 this year. Your taxable income is lower than this because depreciation is not coming out of your pocket.
And you add the previous year's loss of $5000 and your net loss carried forward is $9000
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thanks for that Terry
Thats much easier to understand so this will continue and when it does finally make a profit it will just reduce the accumulated net loss carried over from the years before. so even if it made a profit that year on paper it still looks like its just starting to break even due to the previous losses. Is this correct?
Now in terms of depreciation can the previous losses from previous years still be used to offset income when it is making a profit?Thanks for the example i think it really did help
JohnYep, that sounds right.
Not sure you fully understand depreciation though.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Haha
after much reading and looking through your example I think I understand.
basically
Rent – Cost – Depreciation = (taxable income)then
(taxable income) – (depreciation) two wrong make a right
therefore
(taxable income) + depreciation = (profit)LOSSSo this is what you mean when you say depreciation isn’t coming out of my pocket.
Now do I get it?in in the case that there was a profit
taxable income – depreciation = profit
therefore reducing taxable income and this is how depreciation ‘refunded’
now have i got this last part right?Thank you
JohnHi there,
We don't have any investment properties yet but would like to start investing this year. It has been interesting and helpful reading what everyone else has been doing. I have read books for months and months but have been procrastinating.
Can anyone help me with suggestions as to what web sites and/or other areas that have the information I need to go to do my research????
Thanks heaps
RaewynHi Raewyn
What sort of additional research are you looking at ?
Property, finance, legal ?
Richard Taylor | Australia's leading private lender
Hi Richard
Thanks for your quick response. I am talking in regard to property, finding out what a particular area is going to do in the future, in regard to growth, infrastructure etc. What is the best way to go about it and who should I talk to? We are located in Alice Springs and my research will need to be done via the internet and phone.
Thank you
Raewynjohnmina wrote:Haha after much reading and looking through your example I think I understand. basically Rent – Cost – Depreciation = (taxable income) then (taxable income) – (depreciation) two wrong make a right therefore (taxable income) + depreciation = (profit)LOSS So this is what you mean when you say depreciation isn't coming out of my pocket. Now do I get it? in in the case that there was a profit taxable income – depreciation = profit therefore reducing taxable income and this is how depreciation 'refunded' now have i got this last part right? Thank you JohnHi John
Just think of depreciation as a non-cash deduction. You don't pay it but can still claim it. So a property may be cashflow positive before tax and negative after.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
thanks for that Terry that clears it all up, I appreciate all your help educating me. Don’t worry I’m sure I’ll be back with more questions, as the more I read the more questions come to me.
Thanks again
John
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