Forums / Property Investing / Creative Investing / Discounted sale tax treatment

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  • Profile photo of EJayEJay
    Member
    @ejay
    Join Date: 2013
    Post Count: 6

    Hi, 

    I have put an expression of interest on a bulk- sale property, the vendor is offering 20% off my banks valuation as they need to sell down a bunch of units quickly to reduce debt. Found through a property advisory group that I've been talking to on and off.

    The arrangement will have me pay full valuation price ( so as not to influence sales history and subsequent valuations) with another contract in place to refund me back the 20%. 

    Does anyone one have experience with this situation and the tax treatment? Question is how the refund is treated. Alternatively would love a good accountant recommendation! Based in Sydney with property in Hervey Bay. 

    Thanks!

    Emma

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,110

    Be very careful about this. Multiple legal issues involved.

    From a tax perspective this could be a rebate. Actually it could even be treated as income.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 11,992

    Hi Emma

    And will you be advising your Bank of the secondary Contract allowing for the rebate.

    If not you could be embroiled in Mortgage Fraud.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me | Phone Me

    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of EJayEJay
    Member
    @ejay
    Join Date: 2013
    Post Count: 6

    Thanks guys, yes I will clearly be getting a good solicitor to take a look, I've been recommended a good Brisbane lawyer. Bank is aware of secondary contract.

    So far my financial planner's accountants think that it is a reduction to the cost base. Getting a second opinion as if it's income that could obviously impact the holding strategy.

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 11,992

    Really Emma

    What lender is happy to lend on the higher of valuation over purchase price ?

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me | Phone Me

    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of EJayEJay
    Member
    @ejay
    Join Date: 2013
    Post Count: 6

    Hi Mr 007,

    clearly plenty of lenders are willing to lend more than purchase price given that 100% finance + expenses is common :-)

    Have looked into it further and this kind of structure has been executed in a number of bulk deals previously. I spoke to an independently recommended solicitor in QLD who said that it used to be permitted in QLD but has since been prohibited there. The investment company also did their due diligence and found the same, they think it still may be possible in other states and have executed same previously. I guess it's around what the definition of 'value' is i.e. fire sale with quick turnaround is never going to get the same value as on mkt for average time.

    Other than that the deal has fallen through as the vendor has been able to refinance.

    In regards to the bank being willing, all I can say is that my banker didn't raise any objections, in fact she said that I could 'include what I liked' above the purchase price given that the loan would be against both the IP and my own residence where I have a healthy equity position.  Obviously there would be an implied limit given my combined collateral position but you get the gist. The anecdotes given by the solicitor and and the investment co indicated from experience that it has been done before (solicitor completely independent FYI).

    I see the value of asking a chat board, as finding constructive folks who may have the experience to indicate that I should seek a second opinion outside of my standard networks and professional service providers, for specific reasons that they are aware of. Or that have other creative ideas  that I can test, as per chat board title. Next time I will clarify whether I would prefer substance free condescension :-)

    Profile photo of wilko1wilko1
    Participant
    @wilko1
    Join Date: 2010
    Post Count: 510

    Ejay If you had of gone ahead with it. It would not have been lent on the valuation price. The only reason your banker didn't raise any objections after you stated what you think the properties are "worth",is because hes getting your other security.  But they are still going to take the The Lower figure of the purchase price or valuation price, to Lend against your LVR levels.

    YES 100%-105% finance is possible but that is because they are cross collateralising your own house and IP into this transaction. This does not mean they are lending MORE then the valuation price compared to the purchase price. Sure they might lend you 105% of the property value to cover stamp duty. But that is because they are wrapping up your IP and home into this deal and are going to put you at several disadvantages if you wanted to sell and or refinance or Slip up on one paying the interest on one of the properties. Because they will not make you sell the property that you have 105% debt on if you make a mistake they will come after the property  with the biggest equity position (Most likely your home)

    The only time that i have seen valuation being accepted is on commercial properties using deeds of assignment.

    I think you need to speak to other consultants.

    Profile photo of wilko1wilko1
    Participant
    @wilko1
    Join Date: 2010
    Post Count: 510

    and the "include what you like" statement is just a Upsell so the banker can say they took out a 500k loan with 400k Line Of credit (900k total) instead of just lending the 500k.

    Upsell for business.

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