All Topics / The Treasure Chest / Taxation advice

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  • Profile photo of StephenArrowsmithStephenArrowsmith
    Join Date: 2002
    Post Count: 3

    Hi all
    I think this forum will be absolutely fabulous once it really starts being used. It is exactly what we need, the ability to communicate with like-minded people and help each other succeed.

    My query is that according to the WRAP investing package, specifically the part supplied by David Bradley, the tax on the capital gain of the WRAP can be treated any one of three ways
    1. Taxed at the time the WRAP contract is signed
    2. Taxed as we go on profits as they are paid to us under the contract
    3. Taxed at end of contact when completed.
    My accountant swears that this is wrong and that Capital gains tax is applicable when the contract is signed.
    Has anyone had advice like mine or should I find a new taxation advisor?
    If I need a new taxation advisor does anyone have one in Melbourne I could contact who understands WRAP’s and the taxation impact and treatment?

    Profile photo of TerryWaughTerryWaugh
    Join Date: 2002
    Post Count: 5


    I have just purchased Dale Gatherum-Goss’ tax manual which has a bit on wraps. In it he states that “there is no capital gain on the sale of the property as the nature of the business is in buying and selling properties. Capital gains normally relates to the sale of an investment asset and not a business”. (page 119).

    So I understand that the ‘income’ you receive is just added to your other salary income etc. So if you receive $4000 per year positive income, this just increases your total income by $4000 for that year (after taking off any other expenses).

    The manual costs $99 until june and it inclueds a 2 hour consultation with Dale who is a tax accountant in Melbourne somewhere ( and He is an investor and seems to know what he is talking about. (ps I am not a member of freestyler and don’t know Dale).

    hope this helps


    Terry Waugh

    Profile photo of BenBen
    Join Date: 2001
    Post Count: 1


    From what I know (and I am still learning), if you a serious about property investing, it would be better for you to start up a business (or company). I agree with what Terry wrote, (but I am not an account.)
    I have been trying to come to grips with the “Margin scheme”. Can anyone give a clear explanation of how it works (if possible with an example [:)])



    Profile photo of AdministratorAdministrator
    Join Date: 2013
    Post Count: 3,225


    I’ve spoken to my accountant about this in some length.

    This is how I do it. If I buy at $50,000 and sell at $70,000 I have potentially made (on paper) a $20,000 profit. However, I won’t fully realise the profit until the very last payment. I am actually realising it bit by bit with each payment.

    Every repayment I receive from the client is part principle, part interest.

    So, let’s say that at the start of the contract the client owes $63,000 (after a $7,000 FHOG). And the first repayment is $122.24. $115.10 is interest, and $7.14 is principle.

    I then calculate the capital gain release income by:
    ($7.14 / $70,000) * $20,000 = $2.04.

    So for this first payment I have made the difference between the interest I have paid the bank, and the interest I have charged the client PLUS the $2.04, which is a portion of the $20,000 capital gain “released” by a principle repayment.

    It is legitimate to “defer” this capital gain release like this *ONLY* if it will be viewed by the ATO that you are conducting a business. So if you only buy 1 or 2 properties, then you probably won’t qualify. However, if you have 5 or 10, then you probably will.

    I am not accountant, so get some independent advice.

    Hope this helps.

    Eugene Ware
    Property Investing.Com Web Developer
    “Web-Solutions with a BUSINESS,

    Edited by – [email protected] on 24/05/2002 11:26:11 AM

    Profile photo of Steve McKnightSteve McKnight
    Join Date: 2001
    Post Count: 1,763


    I understand the nature of this uncertainty and cannot provide any hard and fast rules, except to say:

    1. There is no tax law that specifically deals with wraps, and as such the information available is subject to opinion based on other the nearest legislation and case law.

    2. In tax you need to establish a reasonably arguable position.

    As far as wraps are concerned, the key is to appreciate the uncertainty and create a reasonably arguable position.

    To this end I think it is important to:

    A. Bring to account the realised profit each year split, as Euge points out, between interest and principal.

    B. Apply your method of reasoning on a consistent basis. Swapping to get the best tax advantage won’t appear too good if you are audited.

    I know wrappers in Qld who have been audited by the ATO and passed with flying colours based on points A & B above.

    As an accountant, I regularly disagree with other people’s opinions. This is why it is important for investors to establish and consider the difference between fact and opinion.


    Steve McKnight

    Steve McKnight | Pty Ltd | CEO

    Success comes from doing things differently

    Profile photo of MikeKellyMikeKelly
    Join Date: 2002
    Post Count: 16

    Hi All. Steve, great site. Super special to see someone consistently give of yourself as you do. As karmic law implies, what you give, so too you get. Give a smile and you’ll get a smile. Give knowledge opportunity and you’ll gain knowledge and opportunity.

    To add a comment to this thread, I’m considering moving my business to an accountant who is currently seeking a private ruling on the wraps scenario directly with the ATO.

    It will be interesting to see the outcome of this ruling. If anyone would like to be notified how he went, send an email to [email protected] so I can let you all know. Failing that, I can post it on this forum for the benefit of all when he receives the decision. Not sure how long it takes.

    Happy investing all, and remember: Positive Cashflow for a Positive LIFESTYLE: coz Life’s too short to be NEGATIVE.

    Best to all


    Profile photo of ArpadMartonArpadMarton
    Join Date: 2002
    Post Count: 1

    Hi All, This is a fantastic site and I look forward to learning from you all and sharing my limited knowledge. With regards to taxation, I beleive if you are trading for a living (instead of a hobby) than you should consider doing it through a business instead as an individual (Assuming that your individual tax braket in larger than 30%)

    Arpad M

    Profile photo of StephenArrowsmithStephenArrowsmith
    Join Date: 2002
    Post Count: 3

    Hey everyone thanks so much for your input and opinions on this matter . This is exactly as I see this forum being used .
    From all the replies to my taxation query I now have enough information and contacts to establish a stable and and reasonable position to work from .
    Thanks everyone . Your terrific !!!!!!!!!

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