Forum Replies Created
You need to be very sure about your strategy. Remember a fixed rate loan locks you into that property for 1, 2, 3, 5 or 10 years – otherwise it can be very expensive to exit! The only other alternative is to switch the loan to a new property but you have to have the right loan in the first place.
There is a difference between claiming your office as a "home office" and a "place of business". When claiming as "home office" there is no CGT implications but you are limited to claiming running expenses ie. depreciation on furniture and the statutory 26c/hour as prescribed by the ATO for lighting, heating, etc. When claiming as "place of business" occupancy expenses are claimable ie. rates and interest.
The "place of business" is only eligible for people operating a business from their home, not people who work from home but are employed by a third party.Daniel
The accountant you spoked to doesn't have a clue! – I can say this because I have been an accountant for 11 years. A DT is the way to go.
From reading the comments above, it would seem the concept of a Family Trust was discussed. Put simply, if there are losses from prior years to carry forward you need to lodge a Family Trust Election which reduces who you can distribute to (basically close family) – irrespective of what the Trust Deed says. The alternative is athat series of "tests" must be passed by the DT.Andrew
Is your loan fixed? Watch any break costs!I would use an option incorporating agreeable terms.
ptykit wrote:Hi all,Can I ask a question about capital gain on an investment property?
I bought a house in 2005 to live in and moved out in 2007, it has been renting since then. I just realized that I should get a house valuation done before it became an investment property. I plan to sell the house in 2010, can I do a valuation now in order to help me pay less in capital gain? Can a house valuation be back dated?
Thanks for your help.
Providing you can find a valuer or real estate agent to value the property as at 2007 (and note this in the valuation) there is no problem with "back dated" valuations.
icecool wrote:thks terry & ben.So Ben, in order to rent back to live myself I will have to first set the Trust to purchase the property in a Trust or Company. How will you structure it for maximum benefits if it were you?? appreciate your advice. thks
I agree with Terry's comments regarding the quarantining of the losses – hopefully you are purchasing a positive cash flow property – and FBT – however, as you would not be classed as an employee for common law purposes, FBT is easily avoided.It would need to be an agreement signed and dated by both parties, setting out the terms of the arrangement.
I don't mean to be rude, but what business is it of ours what signs are put up on telephone poles! If they are as horrid as you suggest, and they are on telephone poles, your local Council will take care of them. By the way, it's not me!
You can purchase the property in a Trust or Company and rent it to yourselves (at market rent). However, Companies and Trusts can never receive the main residence exemption, so whilst there will be some initial tax benefits, CGT will be payable on the sale.
I think an acknowledgement of debt would be the way to go – because you are talking about a liability you can't make provision for it in your will. Your estate will collect all outstanding monies and pay back your fiancee as per the acknowledgement of debt.
Qlds007 wrote:If the property is sold (whether it is owned personally or in Trust) and a contribution is made into Superanuation then the Contribution (Subject to not exceeding the maximum contributions per year) can be offset against any Capital Gain.I.e You make a Capital Gain of $50K and $50K is Contributed into a SMSF that year.
The Contribution into your SMSF is Taxed at 15% on the amount contributed.
Only when you are in Pension phase and the funds are withdrawn by way of an Annuity is the cash out Tax free.
Any Capital Gain made with a SMSF is Taxed at 15% although the concessionary rate is only 10% (where the Asset has been held for more than 365 days) which makes it attractive.
Also remember that if the SMSF is in full pension phase, all earnings (i.e. interest, dividends, rent, capital gains) are tax free. This is yet another benefit of using a SMSF closer to one's "retirement"
The advantages of converting your PPR to an IP and renting can be substantial – tax savings (don't forget depreciation may be claimable on the construction cost of the house – depending on the age of the house) and you may be entitled to some rent assistance (if you have children) – in some cases this can be approximately $60 per week.
Qlds007 wrote:BenNAB Commercial loan goes to 70% LVR on residential property and the interest rate is 6.74% variable.
The set up costs including the Bear Trust and new Pty Ltd Company come to around $6000 with the right Solicitor.I have done 7 of these deals to date and admitedly they are not straight forward I would certainly recommend it to a client looking to gear in to Super.
Richard
This is interesting because I have received quotes from NAB and Westpac of double digit interest rates and establishment costs of between $10k to $30k.Terryw wrote:ibis69 wrote:I am told that you can rent out your PPR and rent a property fro a similar purpose,The benefit you get back could be up to/more than about $26,000 ,I envisaged thsi to be the sort of deal where really both rents equal out and you end up basically with your normally home loan but with a bonus of Approx $26,000 extra tax at the end of the year?????? tax is not my forte
Any Help
Yes, s118-145 of the ITAA allows you to rent out your main residence and still treat it as your main residence for up to 6 years. This means you can keep it free from CGT while still being able to claim all the normal expenses such as rates, depreciation etc.
You are right, but what if you purchase another PPR – you then have to choose which property to apply the PPR exemption to – that is why I made the suggestion regarding obtaining a valuation at the date the property became available for rent – it "uplifts" the cost base.
daniellee wrote:Hi, Joyce
I have no idea how much C&N would charged over the average accountant to do the returns for individuals with IPs, or tax returns for trust. Then again, I have no other reference to compare against. That is another reason why I am planning on meeting another accountant, to get a difference point of view on the feasiblity of a trust for us, and to look at the fee structure to do the returns.
Personally, I looking forward to getting this Trust issue sorted out as soon as possible.
Anyhow, has anyone bought IPs using their SMSF? What are the pros and cons, in terms of tax rates, CGT, interest deduction and depreciation?
Regards
DanielPurchasing in an SMSF can be somewhat restrictive from the point of you that a SMSF can't borrow – I know some of you might say that the ATO have recently amended the rules to allow borrowing through a warrant structure, but commercially it rarely stacks up – look at the interest rates charged (over 10%) and the fees to establish (between $10k and $30k) – this is because it is a limited recourse loan.
I also know it is possible to purchase a property as tenants in common with another related entity – but the property can't be used as security.
However, the tax benefits can be substantial. If you are able to access your super (ie reach your preservation age – normally 55) and start to draw a pension (even as little as 4% each year) the income and capital gain of the SMSF is 0%. It gets better – if you are 60 years or older, whatever you draw from your SMSF is tax free too!daniellee wrote:Hi, BenWould it not be expensive to have one property per trust only?
I spoke with another accountant with experience in dealing with property investors, and he advised me to write everything that I wanted to use a trust for down, so that we can go through the feasibility of a DT after the new year.
Already, I am looking forward to that meeting.
Regards
Daniel LeeCosts less than $400 to establish and a similar amount to complete the annual Financial Statements and Income Tax Return. Having one property per trust also assists in bookkeeping to ensure the correct income and expenses is matched back to the correct property. As an accountant I have seem many investors purchase multiple properties in the one trust. Because there is income coming in from multiple properties and expenses going out, bookkeeping becomes a challenge – remember not all investors are good bookkeepers! The annual fee for preparing the Financial Statements and Income Tax Return then becomes a lot more than it needs to be.
give90 wrote:ben;
why do you establish a new disc trust for each property?Reason 1 – asset protection – if one trust is sued all assets owned by the trust are "up for grabs"
Reason 2 – when applying for finance, you don't have to include details of all your other properties which makes things a whole heap easier – this is a trick I learnt from a mortgage broker from Hervey Bay in QLD and another experienced property investor. It worked as recently as the week before Christmas when we purchased another investment propertyNo additional costs, but if your old PPR was your PPR for the entire time you owned the property up until it became available for rent, you can obtain a valuation of the property when it first becomes available for rent. The value becomes your cost base for CGT purposes for when you sell the property rather than what you paid for it. For example, if you purchased the property for $300k 3 years ago, and then converted the property to an investment property 2 years later when the property was worth $370k, the $370k is your cost base for CGT purposes, not the $300k.
I have been an accountant for 11 years I have never recommended any of my clients touch hybrid trusts – reasons being, they are complicated and expensive.
My recommendation would be the establishment of a discretionary trust. Not only is it my recommendation, I established a discretionary trust for each of the investment properties I have purchased i.e. 1 investment property per trust if you employ a "buy and hold" strategy.
