Hello all,
I need some advice as to how to best set myself up for this financial year. I would greatly appreciate your time and advice.
I have a PPOR Bank Val $420000 debt $293,000.
My salary is $85 per annum + super thus in the .38c bracket.
During this financial year I have the opportunity to purchase an allotment from someone that for want of a better word owes me money. (not totally accurate but in an attempt to keep the sitation clear I wont go into details).
My inital thoughts on the best way to handle this deal would to sign purchase documentation as at strike price – payment (80k). Reduced stamp duty.. However I have two concerns about this.
1) I believe this may affect the property valuation. I would think that as the purchase would be 'off the plan' the valuer would deem the property worth the contractual price and thus my ability to gain finance to build on the property would be next to nill (strike price is $138,000 – $80,000 = $58,000.
2) While I may not have to pay tax on the income of $80,000 I would have to pay it later on the sale due to CGT? I dont plan on selling inside the 12 months however I think this would still be big issue.
Based on the above it seems I would be better to pay the strike price and receive the payment of $80,000 of which I would pay .38c /$1.
If I were clever I would then need a way to offset this tax……. am I on the right track.
So how do I do that.
If I build on the property straight away and rent it out will that help? I can claim the interest on loan and depreciation, anything else?
Or do I need to purchase a reno style home in order to sink the $80k into?
80K is an enormous amount of money for someone like me and I really dont want to give 1/2 away to the taxman. I have worked my butt of for it and I want to use it in the best was possible to aid my future.
Thanks for taking the time to read
You can pay whatever you like, but
Stamp duty must be paid at market rates
http://www.austlii.edu.au/au/legis/nsw/consol_act/da199793/s21.htmlCGT must also be calculated at market rates
Putting lower figures on contracts etc could result in lower valuations which may mean lower borrowing abilities.
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 Terry,
Would your advice to me be pay the $138,000 for land and then declare the 80k income pay my .38c in the dollar and just cop it sweet? If I do this as I had planned (unless any one has any better ideas) I was going to set up the land loan seperate to my PPOR and pay the $80K into my PPOR… does this sound like an okay plan?
Why do I keep hearing about how accountants set up financials for clients so that they pay next to no tax by declaring expenditure etc on investment property? Is this for people in a much higher earning bracket than me?
I would suggest you pay market rates for the land. If the owner has a debt to you of $80,000 then you can pay value less what he owes you. Its as if you have already paid $80,000 deposit.
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
Owe okay thanks Terry,
So perhaps the contract shows the value @ $138,000 and the deposit of $80k. Upon settlement I pay the balance.
I pay stamp duty on the total value. This maintains my value and aids future CGT issues.Do I still need to declare this $80k as income – as I am not being paid it. Would I have to decalare it as a CGT event?
Sorry for all the questions, tax is a new area for me and our local tax people do not seem very clued in.
It would depend on several senarios – is the money owed actually income (ie you have worked for the debtor?/Sold them goods/services for which you are yet to recieve payment? Is this the profit from the sale or total debt (so it may include your costs of earning that income? or is this money a loan made to the person? etc).
If it is not income (ie repayment of loan), then it might be considered 'tax-free' and used to offset the deposit.
If it is business income, then your costs should be deducted and if it is infact income, then the appropriate tax may need to be paid.
Intrigue wrote:Owe okay thanks Terry,So perhaps the contract shows the value @ $138,000 and the deposit of $80k. Upon settlement I pay the balance.
I pay stamp duty on the total value. This maintains my value and aids future CGT issues.Do I still need to declare this $80k as income – as I am not being paid it. Would I have to decalare it as a CGT event?
Sorry for all the questions, tax is a new area for me and our local tax people do not seem very clued in.
Depends, is the $80,000 a business debt? If the $80k is a debt owed to your business for work you have provided, then it will most likely be income in your hands, and assessable. If it's due to the sale by you of an asset, then it may be assessable under the CGT rules.
Whether it's income or capital gain or private really depends on why the amount is owed.
Okay, this topic continues to intrigue me.. just cant work out the best thing for me to do. Thanks for bearing with me.
When I signed the contract for the 'off the plan' purchase the developers were offering a rather healthy reward for referring other purchasers to the project. Many of my friends also purchased therefore the $80k is a referral reward.
The developer is unlikely to meet the sunset date and as such I will have the opportunity to re-sign. Therefore I am trying to figure the best way for me to structure the new contract.
I guess an accountant will be able to help me determine whether in my situation the 80K is an income that needs to be declared (be it paid in cash or show as the deposit on the contract).
After our conversations I learn that CGT and SD is payable on market price thus the $138k whether the contract price is this or not.. so thats that question answered.
My preference has always been to put the $80k or whatever is left of it after tax into my PPOR thus the IP can stand alone as IO and with repayments deductable. To do this I sign and pay for land @ $138k. Take my 80k payment in cash and put into my offset to PPOR. (only problem after tax my $80k is now $49,600 boo hoo)
If the 80k is not considered income it seems best for me to take this amount from the asking price and do the contract as suggested $138,000 with the 80k as deposit (+ the actual 10% deposit I paid). Problem, the 80k is now in the IP not on the PPOR thus there is interest that I cant claim (its in the wrong spot!)
I was thinking that when I refinanced the land to build a house that I could take the 80k back out then and put it on my PPOR offsett but I think now I realise that I cant do this.
Any thoughts or ideas?
I dont want to be or appear dodgy, like I dont want to pay my dues/taxes (but well I don't ,who does!) If there is a way within the law that enables me to use my money to better effect I am desperate to learn.
Home Mortgage Interest is a tax-deductible expense for rental properties and Interest on Investment property loans is usually the biggest deduction you can claim.
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