Cashback Deal

[NedKelly]

I have been negotiating a unit purchase and have been offered $20,000 cash back on settlement. Basically the unit is overpriced but the developer doesn't want RP data showing sales at prices below his advertised price. This would affect valuations and he has a lot more to sell yet.

Does anyone know if this would be taxable?

From a personal point of view. If I was to sell the peoperty at a higher price some years ahead (big if!), then I would have to calculate the CGT based on the purchase price which would be $20,000 higher than I effectively paid.

 

[TheDoctor]

I would say, by the sounds of it, the $20,000 is a reduction of your purchase price. Therefore it is just a reduction of your Asset cost base and not taxable in your tax return for this year.

 

[aw1]

I would approach it the same way as TheDoctor.

However, you will have to reduce the cost base by $20k for CGT calculation purposes. Can't have it both ways!

 

[Rob G.]

Its analagous to the old lease incentives issue.

Where you are not trading in properties, this is a recoupment of an expense incidental to acquiring a capital asset. The close proximity suggests you reduce the cost base.

Don't have time to look up the ruling ... off to a meeting.

Cheers,

Rob

 

[Nathan]

who is the developer? and where are these properties? just curious...

This is very very dodgy and dont advise as it can be classed as fraud. on many differnt accounts

 

[Piston Broke]

Is a cashback on a car also fraud?
Free aircon on a new home etc?
I'd say it would depend on the details, which are not disclosed here.

 

[AUSPROP...]

is $900 cash handed out to a bizarre selection of the population fraud?

 

[Piston Broke]

is $900 cash handed out to a bizarre selection of the population fraud?

No it's a reward for spending all they have and then some more and having the highest debt to income ratio in the world.
Only solution for the problem this creates of course is "here, have some more and spend spend spend".
Of course they know it end up in the banks.

 

[Nathan]

Hehehe,

i see it that way, but law sees it as mortgage fraud, as your fudging the figures to get in no money down.... your getting cashback from the bank...

i not making comments, just saying be careful.

 

[Rob G.]

Looking from a Taxation viewpoint ...

s.110-45(3) reduces cost base by any recoupment which is not assessable income.

e.g. First Home Owners Grant.

e.g. Compensation received in relation to a CGT asset where the asset is not disposed of or lost (e.g. compensation received from vendor for over-inflated price quote).

**BUT**

Separate contracts incidental to the acuisition of the asset might be treated as separate assets.

e.g. Recoupments from reverse earnout clauses in purchasing a business would be treated as a separate CGT event D1.

SOOOOO .... if the Commissioner regards this as a separate little contract you could be up for CGT with very little cost base (legals) and no 12 month discount.

I suggest you consult both a Taxation and Property Lawyer before proceeding because I don't know of any explicit ruling or case close enough to your facts, or even if there is a Propert Law issue as well.

Cheers,

Rob

 

[BV]

This is very very dodgy and don't advise as it can be classed as fraud. on many different accounts

I went to Dymphna Boholt's seminar today and she mentioned a story of a lady who bought an apartment at the Gold coast.

She asked the vendor is he would pay the stamp duty and he agreed and then because she wasn't quite sure if she should buy the place they gave her the keys of a brand new BMW on settlement.

A few months later the remaining apartments were selling for $100K less.

 

[BV]

Hehehe,

i see it that way, but law sees it as mortgage fraud, as your fudging the figures to get in no money down.... your getting cashback from the bank...

i not making comments, just saying be careful.

One of my tenants wanted me to sell my IP to him and to write a selling price of $35K higher so he can use the 35K as the deposit.

My solicitor said it was fraud but giving him a small reward let's say $5K for agreeing to settle early is fine.

 

[Nathan]

exactly my point... Kudos BV...

If used as deposit, can come back and haunt you big time.

Guess depends how well you protect yourself and the case stands up hey...

 

[Rolf Latham]

if the rebate is disclosed as a Special Condition on the contract then no prob.

This style of rebate is COMMON place amongst many land and apptment developers from teeny weeny to mega coglomerates

ta
rolf

 

[NedKelly]

Looking from a Taxation viewpoint ...

s.110-45(3) reduces cost base by any recoupment which is not assessable income.

e.g. First Home Owners Grant.

.................

That's interesting, so a FHOG is taxable as CGT when you sell, unless it's your PPR.

 

[NedKelly]

I went to Dymphna Boholt's seminar today and she mentioned a story of a lady who bought an apartment at the Gold coast.

She asked the vendor is he would pay the stamp duty and he agreed and then because she wasn't quite sure if she should buy the place they gave her the keys of a brand new BMW on settlement.

A few months later the remaining apartments were selling for $100K less.

I was at her seminar in Brisbane. The story there was the apartment was on the Sunshine Coast and she really was angling for the BMW.

 

[BV]

I was at her seminar in Brisbane. The story there was the apartment was on the Sunshine Coast and she really was angling for the BMW.

yes something like that

 

[TheDoctor]

That's interesting, so a FHOG is taxable as CGT when you sell, unless it's your PPR.

Yes and no depending on how you obtained the grant.

Lets' say you moved into the house straight away, got the grant and lived the mandatory time (cant remember what it is urgh I'm so tired this morning) and then moved out and rented out the house.

There's this rule called the "Home first used to produce income rule". Under this rule, assuming you would be CGT exempt up until the point the house would be rented out (which it would), it is assumed that you purchased the property at the date it started to be rented at Market Value. So luckily that bullet is dodged.

 

[Rob G.]

Yes and no depending on how you obtained the grant.

Lets' say you moved into the house straight away, got the grant and lived the mandatory time (cant remember what it is urgh I'm so tired this morning) and then moved out and rented out the house.

There's this rule called the "Home first used to produce income rule". Under this rule, assuming you would be CGT exempt up until the point the house would be rented out (which it would), it is assumed that you purchased the property at the date it started to be rented at Market Value. So luckily that bullet is dodged.

Problems:

1. Whether you fulfill the MR exemption (different from FHOG) according to TD51.

2. In a flat market, and for such a short time, you lose the Stamp Duty and all legal incidentals of acquisition from any cost base, not to mention all the non-deductible interest expense you cannot capitalise.

Cheers,

Rob

 

[Peter_Tersteeg]

It's not fraud if it's fully disclosed in the contract of sale.

The problem will be that if a lender looks at the contract, they'll immediately discount the value of the property by $35k and they'll lend on the actual value. This could create some interesting challenges at settlement.