Hey Guys,
following on from my post in this Thread. This idea grew on me so much that ive ran the numbers. Its turned out to be a better outcome than i though so i thought id share it with you guys.
Ive attached the calculations but to summarise,
As the income of the trust is lower than expenses, you get to 'carry forward' the losses the trust makes and offset this against the future sale price.
The trust makes an accounting loss of $121k over the 6 years of ownership (mainly thanks to $52k of depreciation). On a Growth rate assumption of 5%, the property will increase in value of $476k in the 6 years, representing a taxable gain of $128k (after deduction of selling costs, add back depn etc).
This gain is offset against the carried forward losses in the trust before being halved, resulting in a real taxable gain of only $7k. Then this gets discounted 50%, resulting on tax being paid on only $3.4k.
So combined this with a 6 year ppor rule where capital growth will remain non taxed, and thanks to the deductions offsetting capital growth on your new ppor, you end up only having taxable income on both property of $3.4k for 6 years of growth in 2 properties.
Love to hear your thoughts on this.
following on from my post in this Thread. This idea grew on me so much that ive ran the numbers. Its turned out to be a better outcome than i though so i thought id share it with you guys.
Ive attached the calculations but to summarise,
- The example is based on an actual purchase back in 08 so depn rates, and costs are actuals, FY10 onwards are estimates
- Purchase a property in a trust for $355k.
- 95% lend, capitalised LMI.
- 7.64% fixed rate for $277k, remainder variable
- Rent house as your PPOR paying MARKET RENT, thus being a proper investment property
- Selling the property on the 6th year anniversary
As the income of the trust is lower than expenses, you get to 'carry forward' the losses the trust makes and offset this against the future sale price.
The trust makes an accounting loss of $121k over the 6 years of ownership (mainly thanks to $52k of depreciation). On a Growth rate assumption of 5%, the property will increase in value of $476k in the 6 years, representing a taxable gain of $128k (after deduction of selling costs, add back depn etc).
This gain is offset against the carried forward losses in the trust before being halved, resulting in a real taxable gain of only $7k. Then this gets discounted 50%, resulting on tax being paid on only $3.4k.
So combined this with a 6 year ppor rule where capital growth will remain non taxed, and thanks to the deductions offsetting capital growth on your new ppor, you end up only having taxable income on both property of $3.4k for 6 years of growth in 2 properties.
Love to hear your thoughts on this.