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Thanks guys… I have lookedat TR 97/23
And it maybe that the Window coverings maybe an 'initial repair' as the proprty is not 'suitable for use' for income purposes.
any thoughts on my logic….I also had to put a TV antenna in after purchase, I would consider this to, to be an expense as an original repair??
Exerpt from Tax Ruling 97/23
Initial repairs are of a capital nature and not deductible
125. A repair after acquisition of property is an 'initial repair' if repair was due when the property was acquired, in the sense that there was a need for repair to restore or maintain the property's efficiency of function. In other words, the property was neither in good order when it was acquired nor suitable for use for income purposes in the way intended.
126. The leading Australian case in this area is the High Court decision in the Thomas case. There, Windeyer J held that the costs of repairing a roof, guttering, wall, basement floor and wooden floor and painting a building in the year of income it was acquired was expenditure of a capital nature.
127. His Honour said (at 115 CLR 72; 14 ATD 87):
'Expenditure upon repairs is properly attributable to revenue account when the repairs are for the maintenance of an income-producing capital asset. Maintenance involves the periodic repair of defects that are the result of normal wear and tear in operation. It is an expense of a revenue nature when it is to repair defects arising from the operations of the person who incurs it. But if when a thing is bought for use as a capital asset in the buyer's business it is not in good order and suitable for use in the way intended, the cost of putting it in order suitable for use is part of the cost of its acquisition, not a cost of its maintenance . The decision of the Court of Session in Law Shipping Co. Ltd. v. Inland Revenue Commissioners, [(1923) 12 TC 621] is commonly cited as authority for that proposition. The principle is obvious without the need for any supporting authority.' (emphasis added)
128. His Honour made it clear that it is immaterial whether the taxpayer knew of the defects or whether the purchase price was affected by them. Windeyer J said (at 115 CLR 74; 14 ATD 88):
'It seems to me immaterial that when the taxpayer acquired the building it did not know of some of its defects … . That means only that the cost of obtaining an asset suitable for its purpose was greater than had been expected.'
Actually, there were no blinds etc.. in the unit … It is brand new ,just completed. so there were no window coverings to start with. Thats why Im confused. I understnd if I replaced old for new due to damage /wear etc… But there were none??
Nothing, however, the over the top interest rates available (income) from the lenders rely on the RISK being transferrsed from them to you. But once alreaday have a liability (a CGT to pay from a sale for example) the game changes on its head. ,Simplisticly, average punter has to rely on share market losses to offset share market gains , when clearing good/bad/ugly investments. Property investors don't have that problem in the main.(they only have capital gains to worry about) I don't know the % nor would I speculate, but most would sell for profit, trigering capital gains. Once this happens wouldn't it be nice to have another framework to offset this money which you know is going to leave your domain (to the tax office). The subtle difference is the % rates offered transfer the 'perceived risk' if you didn't have a CGT liability already realised. That is the point, that needs some thought and reflection. Once the light goes on, then it becomes apparent the opportunity.There are products specifically designed to pay you to gamble on having a lose at the benefit of having high % interst return. But if you already have a known mechanism to offset this risk (your CGT payment) then the risk is completely negated….
I'm not sure if I have articulated a credible answer.. research and you may find a suitable strategy
Cheers
Tim
(I have no pearls of wisdom)
Hope this helps,
Dear Scottt… and v8ghia
I'm completely aware of Shares vs Property investores every day of my life….
Don't want tot get in a war or words… I am comfortable in understanding derivatives and options on the share marlet side of the ledger.
I only propose that there are are opportunities that some (not you in particular may want to explore) that can exploit legally. once you have maximises the a CGT liability you have to pay. (in other words money that leaves your control to another – the ATO. Then if there is a legal mechanism to claws back that money and turns it into income to you . Then I would investigate
I'll be honest , and frank, without being judgemental, research it before you completely dismiss (I'm being polite).v8ghia, with repect, more than happy to chat off line.. your comment tells me you have misunderstood the message, go to tje link I have provided in the post earlier today and read the fundamentals of options (Hi Notes in particular) that will give you the parameters for the risk. I, to ensure that intentially made it more risk aware to ensure that I was not misleading anybody
I have no agenda or interest, do your own research (then comment)
Regards
Tim
(I have no pearls of wisdom)
Sorry I take that back……. don't invest in what you don't understand.
Duckster ,
See my post on CGT and income posted earlier today
There maybe a fairyland… I am a Stocks person who has just moved into the property world
1. Grab your CGT liability from the property you have just sold (or will sell)
2. Buy investments such as Hi-Notes
3. Basically you are buying options on hoping a share price of a stock such as NAB, RIO, 100 of others stay at the same price (or goes higher).
4. Now if they go done you have to buy these at theend of the term at a new lower price so there is risk you could lose some capital.
BUT HERE IS THE FAIRY DUST
A. iF YOU LOSE ANY MONEY OFFSET AGAINST THE CAPITAL GAIN YOU WERE GOING TO HAVE TO PAY ANYWAY. SO YOU HAVE LOST NOTHING.
B. INVESTMENT HOUSES PAY WAY OVERT HE ODDS IN INTEREST TO HOLD YOUR MONEY FOR A FINITE TIME – TO INVEST IN OTHER ALTERNATIVES TO OFFSET THEIR RISK ON THEIR POSITION ON STOCKS. so they may pay you interest of between 10% – 45% for that priveldge.But your iisk is already covered by the CGT you have to pay as part of selling a property.
eg… $50,000 Captial Gain Liabilty from the sale of a $600,000 IP.
Invest $100,000 of the Sale (profit) in 4 or 5 companies with Hi Notes earn $20K to $30K in interest with 2 scenarios happening as well. (sell in July and you have 12 months to enact before you have to pay the Tax man the CGT)
1. No Capital Loss of HiNotes (Shere prices stayed same or went up) You still pay Taxman $50,000 CGT
2. Capital Loss of some description with $50,000 margin of leverage. That is if your NAB, RIO and 3 other stocks plummet beyond 50% you are now starting to conceptually be adding to your total loss for the tax year. Very Very unlikely (then again who saw the Global Crisis coming). And what if it did and you lost upto $60,000 well you just made $20,000 in interest and pay the extra $10K loss out and you still have earn't 10% on the 100K, Simplistic, but you should get the conceptNow like anything…. there is risk and speak to your advisor etc. etc. etc.
Cheers
Tim
(I have no pearls of wisdom)
Hi Looking to,
I'm just about to sign an IP contract for a Unit at Deception Bay with uninterupted water views. Do you have an opinion on the redcliffe/Deception Bay area (not sure where you are exactly located) in general. I'm pretty confident my buy is good value, and I'm banking on the water views as the key to capital growth. (I live in Melbourne -so am using internat to get all my knowledge!)
any thougths appreciative
Tim
(I have no pearls of wisdom)
Thanks Mike,
You can't recommend anyone? My solicitor is charging the upper end.. (which I believe is above the odds) and it has been extremely difficult using internet to find anyone… no-one on this forum has come forward as yet?? Wierd! Cheap lead !!
As for banks , your on the money, I organised an Instalment Warrant through online portal, only to have it knocked back by bank , then when my Solicitor made variations, knocked back 4 times, eventhough he had done a plethora of deeds with the same bank before. (apparently the bank changed is policy early in the year due to the APRA changes involving financial products) That is why I'm a little nervous about doing it myself.
Ash, From my experience… assuming you had an SMSF setup, similar to Mike's response.
My last property was a $460K apartment, and the costs over and above normal IP costs were :
Setup Bare Trustee $990 (This is the holder /owner of the property till it is sold or paid off)
Set Up Bare Trust $2000+ (Need one of these for each property) Platform for the property to be held in trust for the SMSF
Legals at Bank lookling at Super Deed and Trust Deed $500
Interest Rate – standard variable 7.25%
LVR 70% (purchase price only, doesn't include Stamp Duty)Cheers
Tim
(I have no pearls of wisdom)
Sorry just relaised I didn't answer you question.
I am setting up a loan to have the property held 'outside' SMSF being held in trust for the SMSF, until final payment made on the loan, then the property can be moved into the SMSF.
regards
You are probably 100% correct… common sense says thats what I could do. I am not that brave just in case I stuff it up. SMSF lending is very tricky (so I have found out). The bank asked for original 'bare trust' certified from legal . Admittedly it was the first time, so 2nd time round the same requirement may not be required… I haven't approached them on that front.
I'm not confident in doing it without legal sign off …
Regards
Tim
(I have no pearls of wisdom)
Hi
There is risk in any purchase, obviously if you buy into a project where every apartment/unit/house is NRAS then the risk is magnified. There are some projects where only some dwellings are allocated to NRAS, lowering the risk.. you just need to research, research. There are some good opportunities, eventhough most you may find are in questionable locations, identifeid by Govt as growth areas.
I have found many websites that I use to rate locations/suburbs (when I don't know the area well), here is one for EVI (Employment Vulnerability Index). Again not definitive , but helps puts some science around research to help make more informed decision. This is only at the postcode level
http://e1.newcastle.edu.au/coffee/indicators/job_loss_index/
Regards Tim
(I don't have any pearle of wisdom!)
Thanks guys,
Thats the problem, the website has the AIQS and I checked their ABN and they are a registered Tax Agent… so it makes it difficult to know how much risk is involved in using their services. I have emailed them to ascertain how they approach self inspection for my curiousity.
Tim
Hi Mick, not sure what state your in, but in Melb today on 3AW radio ,they had a segment on power utilities increasing the peak tarrif for electricity by 40% to those who have installleded Solar. Unbelievable they gode you into doing the right thing, and they sting you.. the listeners worked out it will cost them more.
Cheers
Tim
Hi Amanda,
I haven't signed yet, awaiting contracts. However, I have looked at 50 to 60 various developments and most have headleases. My understanding It is upto the developer to 'decide' how they want to arrange the NRAS payments to be managed. Some are using headleases and some not (NEIJV) . This is my first question to the selling agent, if yes then I say not interested. Unfortunately some of the best properties are using leases, shame. Regards.
Tim
Sorry Kris , I won't bother you again, the information is still fuzzy.
I already have a Bare Trust set up for Property A and a Security Trustee. I understand I need to set up a new Bare Trust for property B, But the information I have ( and will contact ATO this week) is that the same Security Trustee (that has an ACN) can be used again for Property B..
Are you suggesting a 2nd Security Trustee (sorry I reresd your email 5 times and I'm not sure of your answer) I think you are with your carpark example, but I am not usre if ou are referring to BareTrust or Security Trustee or both.
I have a separate Corporate Trustee for my SMSF.
Regards Tim
Hi Kris,
So we have got our terminology right. I intend to set up a New Bare Trust (old Instalmwnt Warrant terminology) but use the Same Trustee Company to hold the property outside my Super fund. Are you suggesting I have to get a new bare trust (which I agree) and another trustee company with ABN. I will get advise, but the bank have given tacit approval at this stage.
Is the bare trust what you are referring to as "custodial trust' or the holding company.
Any info appreciated
Tim
Hi Mr501
I have done 100 of hours researching NRAS and I have just put down an EOI for a property in Qld. So I'm sold – Do your homework the scheme is brilliant for a number of reasons – one of the few things the Govt got right.
website http://www.landordcentral.com.au will show you some of the properties around. The website is a good starting point in that you can change the variables on the calculator to get an approximation. I built my own on Excel spreadsheet to check and the figures are pretty accurate…
I am buying my propert y through SMSF so my return is a little less due to tax position etc.. but the 10 year hold is fine by me. As an aside you can sell your property mid way through NRAS contract.. it may have to be sold with the certificate, that may cause some issue with resale etc… unless another investor picks it, at what price??
Produce a report on landlord central, and you will get 2-3 pages on risks /assumptions this gives you a good overview of how it works from a practicble standpoint.
The three major risks I can see (apart from all the others in property investment) with NRAS.
1. Whilst it is not a 'Govt housing' project and aimed at low -medium socioeconomic , can't guarentee what tennat quality will be like. However , 20% will encourage tennants to look after property, or they are out. Your PM should be doing this for you anyway.
2. THe Property Manager must ensure your tennants each year are still eligible ,if not they have to move out, if they breach, you may not receive tax credits etc for that year.. again your PM must be on top of this.There are long time frame allowances.
3. The areas I have found are not your most desirable suburbs etc… however they have been idnetified by Govt as high growth… so need to be unemotional about the transaction – as you should be with property anywway.Otherwise this program is a no brainer whilst you loose 20% in rent you gain approx 30+% back in the incentive. There is a cash flow issue , with the lag between rent discount and picking up the incentive, but if you can weather that , your in front.
Finally, use google like "realestate NRAS" and http://www.realestate.com.au and domain .com will pick up a lot of properties from smaller developers with NRAS certificates attached. Another point stay away from Headleases if you can , banks are still not as friendly as they should be, I'm sure someone will reply , I have done NRAS through bank with headlease, interested how they went. My property is a NEJV without a Headlease.
Hope this helps.
Tim
Thanks Kris, excellent info.. helped clear the issue up in my head. I'll check on the land tax issue as I was intending on using the same trust to hold the 2nd property to save money… but this may backfire if what you have suggested has merit
I have tried to avoid headlease agreements with NRAS. There are some good properties using Ethan Model. Avoiding the Head Lease arrangement meant I could treat the transaction as a normal property investment within SMSF. The NAB had no issue, the NRAS Certificate is 'attached' effectively after the sale, so from a finance perspective the bank will lend 70% LVR, which suits me as it makes the property cash positive (after tax) which is fine.
My only concern is what guarentee witll the NRAS certificate be attached to the property upon settlement. The developer has offered a letter to ensure the property has an allocation. But I am buying off the plan , so a lot can happen in 12 months.
Not sure if others have experienced Ethan Model in NRAS purchases.
Regards,
Tim
