Forum Replies Created
Normally I'd say stick with the signed lease, but I notice you say the market rent is probably now around $550-$600 a week.
If it were me, I'd offer a reduction of $50 – $75 a week (Still above market) with the tenant signing a 12 month lease from the date of the rent change.
It's not a s much as you were getting , but it's above market, and extended for another 7 months or so.
You only pay CGT on sale, so if you kept the townhouses for rent, then you wouldn't pay anything at this stage.
But that's not avoiding the tax, it's only delaying it, unless you never sell.
Borrowing in the Unit Trust may be an issue, as it could mean the SMSF investment may breach s71.
Best to see an expert and get this all sorted out before starting. SMSF's ownership of units in a related unit trust were tightened a couple of years ago.
Option 1: – Shouldn't have any implications, as boarding is treated differently to renting. You would not be able to claim any expenses related to the boarder.
Option 2: – As discussed above, you would have to move in to be eligible for the main residence exemption. Depending on what it cost you to buy the land and build, and what you can sell it for, there may be very little CGT anyway.
Option 3: – Your advice is a little off. You have to live in it first, to be eligible to use the six year rule. Then you can rent it out, and still be free of CGT, as long as you don't have another PPOR.
omacamo wrote:Option 2: I sell the place now before I have lived in it. I have had advice from a professional tax agent saying that the rule for classing a place as your PPOR is that you only have to prove intent of living in this property and if circumstances have changed then the exemption will still be valid even if I have not lived in this property? If this is the case then I can probably sell it and make the best of a bad situation and get out because if I have to pay CGT tax I'm pretty sure I will be covering costs which would be disappointing…
I have to disagree with the advice you have received. The ATO are quite clear in saying that the mere intention to occupy a dwelling, without actually moving in, is not enough to obtain the main residence exemption.
You would have to move in to qualify for the main residence exemption.
LC888 wrote:I was thinking of Geelong area (Newcomb) but getting conflicting advice from people around me, hence, now, thinking twice if I should focus on western suburbs around Melbourne (15km from CBD or thereabouts), which is still affordable ($450K) instead of Newcomb ($300K).What do you think?
I don't know the area all that well, so I'd be reluctant to comment. All I can suggest is keep doing your research and your sums, and you will work out the way to go that best suits your goals.
Another thing I'd say is that while it's great to have people around you that can give you advice, you will need to filter out some of the less helpful advice as you progress. What best suits others will not necessarily best suit you, so others advice can be distracting, even if it is well-meaning.
Hi Mat,
Couple of questions – Do you both work? If so, are your income levels similar? Will the property be negatively geared to begin with?
LC888 wrote:Shahin, last month, the net operating cost was $505.41. I bought the townhouse in 2007 for $375,000; it was appraised last year by my agent to be priced between $365,000-$385,000. When I applied for a line of credit using the townhouse as a security, it was valued by ANZ at $383,000. Therefore, annual CG is almost negligible.
How much rent are you receiving for the SA property?
Agree with Richard. Deliberately looking for a low yielding property just to reduce tax is poor advice, in my opinion.
Re: what should you do – it depends on your goals and priorities. I would look to using the equity in your SA townhouse to help purchase more property. But only if this fits with your long term goals.
Re: tax – Paying tax means you are making money. If you have done everything to minimise tax (depreciation etc) then paying tax is not necessarily a bad thing. Would you rather 62.5% of something, or 100% of nothing? Tax consequences forms part of the decision making process, but it shouldn't be the main factor, and other costs also must be taken into account. (Selling agent's fees, for example.)
Buying more property could help you reduce tax, while increasing your asset base. That's what I'd be doing.
Hi Jamie,
Just noticed CBA have done the same.
If you are building to sell, the profits will most likely be treated as revenue income, rather than capital profits. This means that you won't be eligible for any CGT discounts.
You will need to register for GST. You will be able to claim the GST on your building costs, and will have to pay GST on the sale of the apartments. You may be eligible to use the margin scheme when selling the apartments, which will reduce the GST you have to pay on the sale.
As the block is already in your own names, it can be an expensive exercise to transfer it into a trust. You may have to pay stamp duty, depending on WA stamp duty rules re: transfers between connected entities. You may also have to pay some CGT on the gain in value between purchase date and transfer date.
Unfortunately not. There are rules relating to related party transactions that would not allow your SMSF to purchase your residential property.
Further to what Terry said, you need to be able to show it was your main residence for a time. Things like getting the electricity and gas connected, changing your mailing address, changing your drivers licence address would be taken into account by the ATO.
To reiterate what Terry is saying, a trust can distribute profits to the company to recoup losses (assuming you pass the same ownership test) and then can distribute the remainder to individual beneficiaries.
That way you would pay the minimal amount of tax.
Also, just to clarify, the company doesn't get the CGT discount even if it receives the capital gain through a trust distribution.
ie – If a trust makes a capital gain of $100,000, and is eligible for the discount (ie – asset held over 12 months)
If distributed to company – taxable distribution is $100,000
If distributed to individual – taxable distribution is $50,000 ($100,000 less 50% discount)
If you are moving from IP to PPOR, the capital gains tax is calculated on a 'percentage of time' basis. For example, if it was an IP for 1 year, then PPOR fro 4 years, then sold, you would pay CGT on 20% of the gain. (As it was an IP for 1/5th of the time of ownership.)
You only need a valuation if you go from PPOR to IP, not the other way around.
I'm with Jamie. You are in someone else's private property, so they can make the rules.
It sounds like you are past using a spreadsheet. There are a few 'cashbook' type programs around, like Cashflow Manager, which are easier to use than MYOB or Quickbooks.
Have a look at http://www.cashflow-manager.com.au
Have you used the commercial property in your own business, or is it a straight rental?
Totally agree with Richard, the advice from real estate agents in particular can be very damaging and costly to the client in the long run.
But the client also has to take some of the responsibility, for relying on the advice of a real estate agent in the first place.
I think as accountants we probably don't do a good enough job of telling people that if they mess something up – particularly in an SMSF – it can be costly to rectify. IF it can be rectified in the first place.
Hi Jessica,
Agree with Terry, you are getting advice that isn't tailored to your situation.
If the trust distributes profit only to you, then there is no tax saving. You would pay the same tax on trust distributions as you would on profit from rental properties if they were held in your own name.
