Capital gains tax question

[Rixter]

Yes there are as many ways as one can put together. I also use Cashbonds.

 

[Terryw]

Cashbonds! That is something I have heard of in years.

 

[turk]

You set up a loan (LOC and/or loan with offset savings account attached etc) secured against the property. You then draw down on this loan when ever you want ie weekly, fortnightly, monthly etc.

For example if you have a property valued at $800k with an existing loan of $400k the banks will allow you to draw out up to 80% of the value providing you have structured yourself correctly to meet the lender's serviceability criteria.

So $800k x 80% = $640k - $400k = $240k available equity for redraw. If you redraw say $2k per week you use $104k of that $240k with $136k still available.

Because you are drawing out equity via a loan it does not trigger any income tax ruling by the ATO. What would you have to earn gross to net $104k in the hand if you had to get up out of bed each morning to go out and earn it?

Use in conjunction with a LOE investment strategy as per my chosen CGA Property Investment Strategy.

I hope this helps.

Quaser

Remember to allow for the compounding interest charges to be paid on the amount drawn down.

This doesn't necessarily stop this strategy working but needs to be allowed
for in your calculations.

Cheers

Pete

 

[Rixter]

Quaser

Remember to allow for the compounding interest charges to be paid on the amount drawn down.

This doesn't necessarily stop this strategy working but needs to be allowed
for in your calculations.

Cheers

Pete

10 years of rental increases across portfolio will do well to offset it too.

 

[turk]

10 years of rental increases across portfolio will do well to offset it too.

Hi Rixter

Quaser would need a substantial portfolio for rental increases to offset to interest on the LOC redraw and has valued his IP at $300,000 with a nett
yield of 1%.

I can't see how this strategy would work for Quaser which is the point of this thread.

Cheers

Pete

 

[Rixter]

Hi Rixter

Quaser would need a substantial portfolio for rental increases to offset to interest on the LOC redraw and has valued his IP at $300,000 with a nett
yield of 1%.

I can't see how this strategy would work for Quaser which is the point of this thread.

Cheers

Pete

Yes Pete, building a substantial size portfolio is an option now Quaser has decided NOT to sell the $300k property.

Hope this helps.

 

[willair]

You set up a loan (LOC and/or loan with offset savings account attached etc) secured against the property. You then draw down on this loan when ever you want ie weekly, fortnightly, monthly etc.

For example if you have a property valued at $800k with an existing loan of $400k the banks will allow you to draw out up to 80% of the value providing you have structured yourself correctly to meet the lender's serviceability criteria.

So $800k x 80% = $640k - $400k = $240k available equity for redraw. If you redraw say $2k per week you use $104k of that $240k with $136k still available.

Because you are drawing out equity via a loan it does not trigger any income tax ruling by the ATO. What would you have to earn gross to net $104k in the hand if you had to get up out of bed each morning to go out and earn it?

Use in conjunction with a LOE investment strategy as per my chosen CGA Property Investment Strategy.

I hope this helps.

Rixter,thanks for your time to post that,it gives me a better understanding..willair

 

[jcwc888]

I'm thinking of selling my first IP because it's increased in value enormously and the rental return is absolutely rubbish at the moment.

Just looking at capital gains tax, and it seems a bit complex. I originally bought the flat to live in in 1998, lived there for 5 years, bought a house with my wife in 2001, but rented it out for 2 years before moving in in 2003. We have since sold that house and upgraded, claiming PPOR exemption for that place last year when we sold it and bought a new one.

If I were to sell the IP, how would I calculate the CGT I'd need to pay? I estimate the value has increased by about 250% since I bought it, but can't see much further growth for quite a while as rents haven't kept pace with prices in the area. Is there anyway to minimise the CGT or is it too late now (it's a one bedroom flat, so moving in there for a family with 2 kids isn't really an option!).

curious which suburb is this in melb of this 1 bedroom flat?

 

[Quasar217]

You set up a loan (LOC and/or loan with offset savings account attached etc) secured against the property. You then draw down on this loan when ever you want ie weekly, fortnightly, monthly etc.

For example if you have a property valued at $800k with an existing loan of $400k the banks will allow you to draw out up to 80% of the value providing you have structured yourself correctly to meet the lender's serviceability criteria.

So $800k x 80% = $640k - $400k = $240k available equity for redraw. If you redraw say $2k per week you use $104k of that $240k with $136k still available.


I hope this helps.

This doesn't make any sense. Then you are just left with a bigger debt to pay off. It's the classic "living beyond your means". Eventually you have to pay it all back. The only way to do that is to sell the place, and then you'll incur CGT anyway.

 

[Rixter]

This doesn't make any sense. Then you are just left with a bigger debt to pay off.

Yes you are correct. It wouldnt make any sense if one is wanting to pay it off and later sell. So why would you ever want to try? To pay it off is only going to cost you more from after tax dollars plus if/when you sell there's all the selling costs and CGT that you rightfully point out. Why pay more when you dont have to.

 

[Quasar217]

Yes you are correct. It wouldnt make any sense if one is wanting to pay it off and later sell. So why would you ever want to try? To pay it off is only going to cost you more from after tax dollars plus if/when you sell there's all the selling costs and CGT that you rightfully point out. Why pay more when you dont have to.

Sorry it still doesn't make sense. Why would you want to continually rack up debts all your life? And what bank would continue lending to you? Eventually they want their money back.

 

[Rixter]

Sorry it still doesn't make sense. Why would you want to continually rack up debts all your life? And what bank would continue lending to you? Eventually they want their money back.

Quasar, have you heard of term 'Living on Equity'? If not, do a search. The topic's been discussed extensively.

Its just one of many investment strategies available to investors to access funds from their large multi $million portfolio's to support their costs of living / lifestyle.

I hope this helps.

 

[Quasar217]

I've ended up selling one property (not the one I was referring to, as the CGT would've been a lot, but one which had gone up a fair bit but I hadn't owned for as long). Selling this will enable us to pay off the rest of our PPOR as well as own one IP outright, and the other only with a small loan (about 40% LVR). Very happy with this result! We'll look at getting back in with another IP when the kids are a bit older and my wife is working again.

 

[Emily_Zac]

Well I've done the sums and I don't think it would be worth it as it looks like I'll be up for around $40,000 CGT and my wife would lose family tax benefits for the year as well. So it looks like I'll be hanging on to it for a while. That CGT sure is a killer.

Thanks everyone for your help.

I know this was posted a while ago , but for people looking the post in the future , we are selling our 1st IP at the momment and centrelink do not count capital gain or lost as income only rental income and lost

Martin

 

[wylie]

I know this was posted a while ago , but for people looking the post in the future , we are selling our 1st IP at the momment and centrelink do not count capital gain or lost as income only rental income and lost

Martin

A few years ago we sold an IP. Hubby made a capital gain and we didn't remember to tell Centrelink to stop paying my family allowance. When the tax was done, we got a bill for a couple of thousand which we had to repay due to having received payments that were too high due to the increased income for that financial year.

That sounds the opposite of what you were told Martin. It is probably worth call again and asking someone else to check what you were told the first time.

 

[Emily_Zac]

A few years ago we sold an IP. Hubby made a capital gain and we didn't remember to tell Centrelink to stop paying my family allowance. When the tax was done, we got a bill for a couple of thousand which we had to repay due to having received payments that were too high due to the increased income for that financial year.

That sounds the opposite of what you were told Martin. It is probably worth call again and asking someone else to check what you were told the first time.

I spoke to centrelink and the ATO both gave the same info and also looked on the centrelink website and it does not state captial gain/loss in the list see below

Entitlement to Family Tax Benefit is based on your actual annual family income for the current financial year. The taxable income you need to tell the Family Assistance Office about for each financial year for yourself and your partner will include:

* taxable income = gross income less allowable deductions
* employer provided or reportable fringe benefits
* reportable superannuation contributions
* total net losses from net rental property or investment income
* the value of any tax free pensions or benefits
* any foreign income that is not taxable in Australia
* tax exempt foreign income
* less the full amount of any child support your and/or your partner pay.

I will call centrelink again and see what they say

Cheers
Martin


I am now very confused , i found this from an earlier post i did

http://www.somersoft.com/forums/showthread.php?p=625067

I will end up with a huge loss maybe that is the 2 diffrence between the 2 cases ?

Martin

 

[Terryw]

After deductions capital gains go on top of your other incomes, so since FTB is based on total family incomes it would probably be affected by a CG.