Depreciation

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From: T W


In the April/May 2001 edition of API Magazine there is an article on Peter Spann. On pages 46-48, Spann talks about the benefits of using a quantity surveyor.

In summary the article states he had a qs look at one of his properties and the qs asked him to find out how many apartments in the building were owner occupied. He then leased the parking spaces from these people they could not claim the depreciation on these being owner occupiers. If he lease the car spaces he (Spann) would be able to claim the whole depreciation allowance on the car park against his property. He did this and lease the whole car park from all other tenants for $10/yr for 20yrs and was able to claim $15,000 a yr in depreciation.

Does this sound correct? How can you claim depreciation if you are just leasing??

Regards

Terryw
 
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Reply: 1
From: Dale Gatherum-Goss


HI

Yes, it is correct. New tax rules came in during the last year (don't they always!!!) that now allows the "effective" owner to claim the depreciation.

I hope that this helps

Dale
 
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Reply: 1.1
From: Owen .


This makes me think of something I posted on another forum but got no answer too.

If I signed say, a 10 year lease with the ability to sub-let and I do, how is this treated for tax purposes. If it is let for more than my primary lease payments, I assume will pay tax on the earnings. Can I claim the primary lease payments as a cost required to earn that income? If I was renting for $250pw and sub-let for $300pw would I pay tax on $50pw or on $300? Conversely, what if I was renting for $300pw and sub-let for $250pw. Could I claim the $50 as a loss?

Sounds like a similar thing to Peter Spanns carpark thing.
 
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Reply: 1.1.1
From: Dale Gatherum-Goss


Hi Owen

You would pay tax on the $50 gain or profit from the sub lease. As always, if there were other costs incurred in earning this income - such as travelling to the property to inspect it - you can claim this against the income as well.

I hope that this helps.

Dale
 
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Reply: 1.1.1.1
From: Owen .


Thanks Dale. Just following on from that, who would be responsible from the landlords point of view.

I'm a landlord, lease IP for 10 years, tenant1 sub-lets to tenant2 and hot water cylinder blows. Who fixes it if tenant1 is earning an income from the sub-let?
 
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Reply: 1.1.1.1.1
From: Paul Zagoridis


The Residential Tenancies Act in your state will cover it. As far as I know no state allows you to contract out of the RTA so the Landlord is up for repairs.

That's what makes sandwich leases so attractive, control without ownership hassles. The trick is finding residential landlords willing to let you do that.

One tricky area is Tribunal disputes especially in areas like excessive unfair rent rises, condition reports and bond refunds.

This is not a simple area and some legal advice should be sought.

Paul Zag
Dreamspinner
 
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Reply: 1.1.1.1.1.1
From: Owen .


Cheers Paul. One more before I check with the proper authorities. Does tenant2 sign a lease with tenant1 or is the original lease assumed?

If the landlord is still responsible for repairs etc (which I thought would be the case) then I guess the same lease clauses would apply except for the rental amount. How much say does the landlord have in the new lease or tenant? As long as the landlord gets his money, the property is maintained and no original clauses are contravened, what is arranged between tenant1 and tenant2 is between them I guess.
 
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Reply: 1.1.1.1.1.1.1
From: Pierre .


Owen,

Cat and I are doing a similar thing with the student lodge. Cat owns the property. She leases it to our family trust, and IAW clause 21 of the Residential Tenancy Agreement, grants permission to the company to sub-let all or part of the property. The rent is set at a fair market rent as advised by a propert manager and a valuer.

The trustthen sub-lets each of the furnished rooms. The trust has income of the rent it collects and costs of the rent it pays to Cat.

To answer your question - yes, tenant 2 does sign a lease with tenant 1. In our case, there is a lease between Cat and the Trust, and 9 "Lodger Agreements" between the Trust and the nine lodgers (they aren't classified as tenants IAW the RTAct, but if they were, then there would be a lease between the Trust and them as tenants.

Advantages:
1. Income earned from the property is transferred from Cat to the trust where it can be distributed in a more tax effective manner.
2. Trust has an income - good for future borrowings in the trust (without guarantee).
3. Cat reduces her income. In fact, negative gearing becomes a good thing!! Good for us as her taxable income is much higher than mine.
4. No need to transfer the property into the trust and be liable for CGT and Stamp Duties.



 
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Reply: 1.1.1.1.1.1.1.1
From: Paul Zagoridis


Pierre

this is a classic post. A zen moment in 238 words.

Ten distinct points mapping out a strategy for wealth creation, estate planning and effective tax structuring.

More importantly it reflects an attitude -- thinking outside the square -- that says "of course you can do that".

Paul Zag
Dreamspinner
 
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Reply: 1.1.1.1.1.1.1.2
From: Owen .


That's excellent Pierre. It explains a whole lot of things and provides a practical use for the theories.

Michelle and I were throwing around ideas about the value (or not) of selling our house to our trust just last night. I'll print off your post and throw that into the mix too.

Much appreciated.
 
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