Forum Replies Created
Hi
I think you need to look at IT 2167 (Income Tax Ruling – just look it up on the ato website)
Arms length letting of an identified part of a residence, e.g. a bedroom, with access to general living areas
9. This heading typifies a situation which is commonly encountered. A variety of arrangements may occur in situations of this nature. The rent payable may cover variable or running costs such as electricity, heating, etc. or the arrangements may require the tenant to pay, in addition to rent, a separate amount towards variable or running costs. The heading would also cover situations where board and lodging is provided.
10. The situations represented under this heading call for apportionment of expenditures incurred in respect of the residence to determine what amounts may be allowed as income tax deductions. Inevitably it will be a question for decision in each case. As a general approach apportionment should be made on a floor area basis, i.e. by reference to the floor area of the residence to which the tenant/lodger has sole occupancy together with a reasonable figure for access to the general living areas including garage and outdoor areas. If, for example, the tenant/lodger had sole occupation of one room in the residence and shared the general living areas equally with the owner/occupier, it would be appropriate to add one half of the floor area of the general living areas to the floor area of the room of sole occupancy in order to make the necessary apportionment. In some cases access to the general living area may be restricted to the kitchen, bathroom, a laundry – it would be necessary to restrict the reasonable figure for access to general living areas to those rooms.
11. Where the tenant/lodger, in addition to paying rent, or an amount for board and lodging, is required to make a separate contribution to specific variable or running costs such as electricity, heating, etc., the question arises whether the separate contribution is assessable income. On the basis that the separate contribution represents part of the reward of the owner of letting part of his residence, the amounts are considered to be assessable income. If the arrangements are such that the separate contribution is made on a precise sharing of costs basis the assessable income will be offset by allowable deductions. If the separate contribution is a fixed amount income tax deductions will be allowed for the part of the variable or running costs attributable to the tenant/lodger's use of the relevant facilities.
12. The approach to be followed in cases arising under this heading has been framed on the basis that the rent charged by the owner represents a normal commercial rent. If the amount charged is significantly less than the normal commercial rate, enquiries would be justified to ascertain the reason for the lower charge. The basis of apportionment in cases of this nature will be determined on the facts of each case having regard to the reason for the lower charge.
Occupancy of part of a residence on the basis of the occupants' sharing household costs such as food, electricity and cleaning, etc.
18. What will be decisive in cases of this nature will be the characterization of the arrangements, i.e., do they produce assessable income. Situations arise where the owner of a residence permits persons to share the residence on the basis that all the occupants, including the owner, bear an appropriate proportion of the costs actually incurred on food, electricity, etc. Arrangements of this nature are not considered to confer any benefit on the owner. There is no assessable income and the question of allowable deductions does not arise.
19. Care should be taken to ensure, however, that what may be termed ordinary tenancy arrangements are not dressed up in the form represented by the above heading. If the owner were not party to the sharing arrangements or if the occupants made a fixed contribution to the owner for household costs, there would be a presumption that the payments made by the occupants contained an element of reward to the owner for the occupancy of the residence. Enquiries will be necessary in these cases to establish the extent of the benefit to the owner which should be included in his assessable income. Income tax deductions for losses and outgoings attributable to the residence would be determined on the same basis as applies under the heading "arms length letting of an identified part of a residence, e.g. a bedroom, with access to general living areas of the residence".
If you need more info on the CGT I can forward you a few rulings as well.
Annemarie
AMH Accountingjoanne76 wrote:sorry Anne,
I have no idea what you mean, I'm just someone that wanted to share the story I have with others.
Sorry if i have offended you with my grammatical errors, I sometimes get a little carried away and don't reread what I'm about to post.Hi Joanne
You have not offended me in any way. I just think there is a general scepticism regarding post that promote a certain company in such a positive light from forum members that are clearly new and have made only one post – the promotional type. You have misspelled the same word as another first time member in a similar post? Maybe just coincidence or not …I don't have any questions regarding you posts – I observed though that you have not answered the questions from other forum members?
The only advice that I would like to offer is that if this is your first property transaction you really need to do your homework and not take the word of just anyone that would like you to part with $500k?
Anne
joanne76 wrote:"We then booked a visit into there office and went in there last week 7/8/2008 and they took us through their presentation and discussed with us about commercial property as well as residential property.Hi Joanne76
I was just wondering how all of these "promotional emails" contains the same grammatical errors and spelling mistakes. Do you guys work from a template?
It is also interesting to see the post replies "dry up" when the questions get difficult.
Hope it works out for you.
Anne
Terryw wrote:I think that as long as you intend to build on the land and to rent, then you can claim interest and other costs from day 1, as per Steele's case.Hi Terry
That is actually not correct. You have to prove that it is more than just an intention and a very active pursuit. You need to show how you have arcitectural drawings/plans for building. How you have applied to councill for approval, that you have contracted a builder and arranged finance for the building process. It is not good enough just to buy the land and let it sit for a number of years "saying" that the intention is to build and rent. That is why the 5 requirements must be satisfied in order to comply with this ruling.
The Tax Office needs to be satified that the arrangement is not a scheme of some sort and if they feel it is, they can just apply PART IVA!One has to be carefull with the interpretation of this piece of legislation.
Cheers
Hi Guys
I live in Emerald In Central QLD, in the centre on the Bowen Basin. Yes, Emerald has boomed and prices has not moved since Nov 2006, but rent are still very strong and demand is not met. Emerald is a Hub Town – population of Approx 18,000 where most miners and other workers buy their own house, after some years of renting. Yes there is a lot of fly in/out workers as well, but people move their families here for the long haul.
I am an accountant here and some months ago one of the mine executives with one of the largest mining companies made the following comment " If people only knew what the mines are planning in the next 5 to 10 years" This mine is currenlty sitting on another 80 to 120 years of coal at current levels of production. If they double the production and don't expand they will still mine for another 50 years. Emerald has an exellent source of water in the Fairbairn dam that supports lot of agriculture, like citrus, cotton, wheat and lots of cattle.
Also look at the following links regarding a new coal mine development in Alpha which could open the Galilee coal basin.
http://www.abc.net.au/local/stories/2008/07/16/2305401.htm?site=westqld
http://www.supplychainreview.com.au/article.cfm?StoryID=35639&SiloID=0
Yes, these are still only in the planning process.
If you have any questions regarding surrounding areas, I will be happy to assist.
Annemarie
Hi CHIS
You have to refer here to the High Court Case of Steele v Deputy Commisioner of Taxation. The link is below
http://law.ato.gov.au/atolaw/view.htm?rank=find&criteria=AND~steele~basic~exact&target=JA&style=html&sdocid=AID/AID2001479/00001&recStart=1&PiT=99991231235958&recnum=4&tot=188&pn=ALL:::ALLIn certain circumstances interest and other holding costs can be deductible.
You need to find yourself an accountant that is good with property transactions and run all these questions past him/her. It is worth every cent. We see so many clients enter into transactions on incorrect advice each year.
Annemarie
AccountantHi Chewy
First of all, you need to establish if your investment property is a residential property or a commercial property. If you just have a residential property (house, flat) that you rent out permanently (not like a holiday rental) you are not deemed to be carrying on a business and if you are not deemed to carry on a business you don't qualify for a ABN. Please refer here to para. 6 " However, it is not wide enough to cover the letting of a property by itself, which is an activity in the nature of investment rather than a business, or an adventure or concern in the nature of trade.9 Therefore, paragraphs (a) and (b) do not need to be considered any further"
You did not mention if you purchased your IP in your own name or say in a Trust Structure – I am just assuming here that it is in you own name. You also did not say if you are involved as a Sole Trader business or are thinking of starting one up as a Sole Trader or in another structure. You also did not metion if the domain name is for the IP or for some other activity. Would be happy to assist if you can supply a bit more info.
Regards
Anne
Chartered AccountantHi Terryw
I have attached some reading for you from the ITAA97 regarding this matter. You can do a search on the ATO website on adjacent land and read the legislation for yourself. This expemtion to adjacent land only applies if the PPR and adjacent land is sold at the same time to the same purchaser at the time when you dispose the PPR and if the adjacent land exceeds 2 hectares the cost base of the land must be apportioned.
Cheers
AnneINCOME TAX ASSESSMENT ACT 1997
CHAPTER 3 – SPECIALIST LIABILITY RULES PART 3-1 – CAPITAL GAINS AND LOSSES: GENERAL TOPICS HistoryPt 3-1 inserted by No 46 of 1998. Division 118 – Exemptions HistoryDiv 118 inserted by No 46 of 1998. Subdivision 118-B – Main residence Rules that may limit the exemption
SECTION 118-165 118-165 Separate CGT event for adjacent» «land» or other structures The exemption does not apply to a *CGT event that happens in relation to land, or a garage, storeroom or other structure, to which the exemption can extend under section 118-120 (about «adjacent» «land) if that event does not also happen in relation to the *dwelling or your *ownership interest in it.
Hide history noteView history notes CHAPTER 3 – SPECIALIST LIABILITY RULES PART 3-1 – CAPITAL GAINS AND LOSSES: GENERAL TOPICS HistoryPt 3-1 inserted by No 46 of 1998. Division 118 – Exemptions HistoryDiv 118 inserted by No 46 of 1998. Subdivision 118-B – Main residence Basic case and concepts
SECTION 118-120 Extension to adjacent» «land 118-120(1) This Subdivision applies to land that is adjacent to a *dwelling (if the same *CGT event happens to the land or your *ownership interest in it) to the extent that you used the land primarily for private or domestic purposes in association with the dwelling as if it were a dwelling.
118-120(2) The maximum area of land covered by the exemption (including the area of the land on which the *dwelling is built) is 2 hectares.
118-120(3) For a flat or home unit, this Subdivision also applies to a garage, storeroom or other structure that is associated with it (if the same *CGT event happens to the structure or your *ownership interest in it) as if it were a dwelling. However, it so applies only to the extent that you used the structure primarily for private or domestic purposes in association with the flat or home unit.
Hi McNorman
On page 71 of Lance Spicer's book the tax solution it states as follows"LAND next door……" It is only vacant land not another house and there are conditions for it to be deemed part of your PPOR
1. The land is primarily used for domestic or private purposes in association with the dwelling2. The land area does not exceed 2 hectares.
When reading this book one has to be very carefull as to the interpretation of the statements – there is a lot of "spin" in there making things sound better than what they are.
I was astounded at how Mr Spicer time and time again says "your accountant says No, but you can." I am an accountant and believe me we all had a good laugh at the spin he puts on things.
Anne
Hi AnGelcAkE
Just to make sure that I understand what you did.
You purchased a new Principal Place of Residence (PPR) interstate. In order to afford this purchase you increased the loan on your previous PPR – now your rental property. In short you drew on the equity in your first PPR?
You will still be able to claim part of the interest on the loan of your now rental property – but not on the part of the loan that you used to purchase your new PPR. You will have to apportion the loan and interest between the two.
You should really also have your rental property valued, by a valuer as you need to establish the value of the property just before it became a rental property. You will only be liable to pay CGT (capital gains tax) on the appreciation in value since it became a rental. The capital appreciation when it was your PPR is not subject to capital gain.
It is normally a good idea to run these type of transactions past your accountant before your enter into them. They can normally make you aware of pitfalls and ensure that you structure them properly.
Annemarie
Hi Chris
Thank you for a well formulated economic response. Some of the other "ideas & opinions" discussed here was a bit "out there". Mind you I am not an economist (just an accountant)Annemarie
Hi Leanne
Have a look at http://www.appliancesonline.com.au/ and also have a look at ebay, http://cgi.ebay.com.au/New-RANGEHOOD-COOKTOP-PLUS-OVEN-COMPLETE-PACKAGE-DEAL_W0QQitemZ290237750561QQihZ019QQcategoryZ20712QQssPageNameZWDVWQQrdZ1QQcmdZViewItem#ebayphotohosting
they have some new packages going and I have purchased a ss oven cooktop and rangehood for a house where I replaced the older oven. I purchased brand name and got all for $1450.00. Just make sure to get the measurements of the cutouts etc spot on if you have to fit into existing spaces.
Hi Ben
All I want to say is that "people's" opinions can cost you a lot of money. Educate yourself, save your deposit and research in your own backyard. There are very good buys in Robina and Varsity Lakes at the moment but they will still get better in 2009.
Cheers
AnnemarieHi There
The tax law clearly states that
"there are no tax consequences where the owner of a residence permits persons to share it on the basis that all the occupants, including the owner, bear the appropriate proportion of the costs actually incurred on electricity, food etc. Refer to Taxation Ruling IT 2167 on the ATO website. It would be much better for you to read this ruling structure your affairs accordingly and not make any claims in you tax return for interest etc. We only have one tax free asset in our life and that is our principal place of residence. If your property goes up in value and you have claimed interest etc you will be liable for capital gains tax. In the long run it is not worth it.
It is always a good idea to find yourself an accountant that is an expert on or interest in rental properties to help you do your tax. Contact the chartered accounts institute for a reference and remember you normally get what you pay for!
