"GST, Tax & Property"

From: Dale Gatherum-Goss


Hi

I attended a seminar on Friday about GST, tax and property and all I can say is SHIT! SHIT! SHIT!

I thought that I had it all under control, but, it is amazing what you learn sometimes.

Please, be very careful with your own situations and seek good advice from your accountant and solicitor as you will be surprised at just what gets caught.

I'm still wading through the 230 pages of information and examples.

Have fun

Dale
 
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Reply: 1
From: Apprentice Millionaire


Hi Dale,

Scary! All I can say is: thank goodness I have a good accountant! :)

Cheers
Apprentice Millionaire
 
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Reply: 1.1
From: Paul Zagoridis


I have had the feeling that the other shoe would eventually drop as the accounting profession came to grips with the implications of GST legislation.

That fear threatened to paralyse me. So I made a conscious decision to keep investing and deal with the issues once they emerged. I am at risk of analysis paralysis at the best of times.

Seems the time is almost upon us to start becoming aware of the next round of GST issues.

Mantra: One door closes and another opens

Paul Zag
Dreamspinner
The Oz Film Biz site is archived at...
http://wealthesteem.dyndns.org/
 
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Reply: 1.1.1
From: Dale Gatherum-Goss


Hi Paul!

yes, I have been aware of the issues all along, but, when you see some of the examples of the law being applied, it is still quite crazy and frightening of the potential problems for the "little people" who will get hurt later on when the tax office steps up their audit activity.

Have fun

Dale
 
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Reply: 1.1.1.1.1
From: Glenn M


I'm with Rob...Dale can you give some examples?


GlennM.
 
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Reply: 1.1.1.1.1.1
From: Paul Zagoridis


Rob and Glenn (and lurkers),

This post is extremely negative but not personal.

These are the sort of questions that concerned me, as they become insurmountable obstacles to investing. The issues will emerge when Dale reads his 200-odd pages of materials and then may still only be theoretically relevant.

Amongst tax professionals there are always many nasty and evil traps waiting to bite people. That is their job. I was at a publishers conference once when an attorney excitedly reported that publishing contracts should be stamped! 2 hours of dealing with that furfy.

GST has major surprises waiting for the unwary (that means all of us). Dale said "Uh-oh"! But deliberately left out the details. They will come to light in the fullness of time.

Will worrying about them help? No. Can you structure yourself to avoid them yet? No.

This is the earliest type of early warning.

What if selling an IP held by a corporate trustee to another corporate were a taxable supply? Ouch! Is now the time to deal with that? Not yet.

What about "how do I find a positive cashflow growth property that returns my deposit in one year?" Yes please!

This post is not meant as a flame or reprimand (although it is reading like it to me). Probably too many exclamation marks.

Paul Zag
Dreamspinner
The Oz Film Biz site is archived at...
http://wealthesteem.dyndns.org/
 
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Reply: 1.1.1.1.1.1.1
From: Robert Forward


Yep, I agree with your point there Paul. Was just asking Dale to see if there were any points that he could elaborate on to keep a topic moving.

Here is another GST issue that has arisen that I'm aware of.

You buy a block of units, do a reno and strata title them. The question is are these units now "New" units thus requiring GST to be paid on them if you sell them. Or are they still just simple "old" units that have been retitled.

This one will have some major implications for those that do this type of investing as they may be liable for paying GST backdated on all units they have strata titled. And it's not as if they could go back and ask for more money from the purchasers to pay the GST either.

But like you said Paul, it's all Furfies at the moment until the ATO start sorting things out fully. And then there will be the obligatory "Test Cases" that will be taken to the courts to test the tax laws. So yeah, there certainly could be some changes but when and how are still some time off I think.

Cheers
Robert

Property Inspection Reports @
http://www.creativefinance.com.au

The Sydney "Freestylers" Group Leader.
 
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Reply: 1.1.1.1.1.2
From: Dale Gatherum-Goss


Hi

At the risk of causing more confusion than I solve . . . the following jumped out at me:

Isolated transactions such as an individual who buys a property with the intention of substantially renovating that property and selling it for a profit. The sale will be GST inclusive and the individual will have to pay GST to the tax office based on 1/11th of the price less the margin scheme adjustment if the renovator so chooses.

To take account of the savings afforded by the margin scheme, it LOOKS LIKE you will have to apply for a valuation in the tax period of the sale and not some time after.

The tax office have decided that "where a sub division occurs, or an interest in the land has altered, then the premises will be new residential premises and therefore GST will apply on the sale.

I'm still working through it all, but, it does look like more trouble for the unwary.

Dale
 
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Reply: 1.1.1.1.1.2.1
From: Robert Forward



>The tax office have decided
>that "where a sub division
>occurs, or an interest in the
>land has altered, then the
>premises will be new
>residential premises and
>therefore GST will apply on
>the sale.

This raises a very interesting option. People who qualify for FHOG and have purchased a newly renovated and strata titled unit should then be able to claim the FHOG of a new premises (either $10 or 14k) rather then just the normal $7k FHOG.

Will this lead to an amount of claims for extra monies out of the FHOG scheme???

Food For Thought.


Cheers
Robert

Property Inspection Reports @
http://www.creativefinance.com.au

The Sydney "Freestylers" Group Leader.
 
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Reply: 1.1.1.1.1.2.1.1
From: Dale Gatherum-Goss


Hi Rob!

No, different departments have different definitions and so your theory won't quite hold.

Worth a try though!

Dale
 
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Reply: 1.1.1.1.1.2.2
From: Aaron Dwyer


I'm now confused and a bit worried.

I am about to purchase with the intent on renovating and selling as I guess many others in this forum do.

I'll be buying privately.

How does GST impact on me other than my need to pay GST on the renovation expenses.??

From this post I now need to pay $20,000 on a $200,000 purchase.?? and then charge GST on the sale as well.??

Thanks

On 3/25/02 2:02:00 PM, Dale Gatherum-Goss wrote:
>Isolated transactions such as
>an individual who buys a
>property with the intention of
>substantially renovating that
>property and selling it for a
>profit. The sale will be GST
>inclusive and the individual
>will have to pay GST to the
>tax office based on 1/11th of
>the price less the margin
>scheme adjustment if the
>renovator so chooses.


--
Aaron Dwyer
0400 856 030
 
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Reply: 1.1.1.1.1.2.2.1
From: Dale Gatherum-Goss


Hi Aaron!

A lot will depend upon the exact facts of your circumstances. If you intend to make a habit of doing this then you will have a problem.

The extent of the renovations will also determine the status of GST when you sell the house. For example, if your renovations are relatively minor, then no, you should not have a problem. However, if the renovations are significant then this will convert the house into a "new" property and hence GST will apply. As such, the GST that you pay in materials and contractors will come off the GST on the sale price.

Be careful and please seek proper advice from your accountant on this issue before you do too much.

Dale
 
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Reply: 1.1.1.1.1.2.2.1.1
From: The Wife


I am keenly interested in this thread, I would like to point out the need to find a good accountant, ( go Dale), and amongst the questions you have to ask an accountant when sourcing one, ( or ask the accountant you have right now), is ...."is he prepared to step up to the plate and bat for you when there's issues?".....or is he going to take what Mr ATO tells him as gospel and run and hide?......this is a big ask, and there are accountants who will bat, you just have to have supreme confidence that they will.

Cheers TW

~this cryptic post like all my other cryptic posts does not constitute advice, it merely points out the ravings of a highly cynical mother of 2 investor who has been round the block and slapped the occasional person along the way who by the way slapped her back so she feels she has some right to say cynical not advice giving things.~
 
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"RE: GST, Tax & Property"

Reply: 1.1.1.1.1.2.2.1.1.1
From: Duncan M


It seems 99% of Accountants are like 99% of Financial Planners. They deliver
the same boring, staid, safe-harbour advice.

The more vexing challenge is not just finding someone who will step up to
the plate but finding someone who's prepared to make fundamental suggestions
on strategy and structure.

Most Accountants can make a very nice living thank-you very much doing
straightforward BAS and Income Tax Returns and by giving the safe-harbour
advice they leave little room for future mal-practice claims.


My advice is to take a VERY keen interest in Tax by:

1. Hanging around the ATO Legal site and read the constant updates at:
http://law.ato.gov.au/atolaw/index.htm

2. Read EVERY private ruling that looks even remotely related to work
related deductions, CGT, property etc.. Private Rulings can be found at:
http://www.ato.gov.au/rba/browse.asp

3. Reading the regular updates on general ATO stuff at:
http://www.ato.gov.au/whatsnew.asp?placement=

4. Read every single post in detail that Dale makes.

5. Seeking to educate your accountant, email him links and ideas, seek his
feedback on your ideas, actively discuss things with him/her on a regular
basis (dont just turn up at Tax Time and expect sage and dramatic advice on
tax minimising)..


Tax is too important a subject to rely upon finding a great Accountant to
effectively manage it.

Duncan.
 
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"RE: GST, Tax & Property"

Reply: 1.1.1.1.1.2.2.1.1.1.1
From: The Wife


Duncan.....very well said, I dont have time to do all that, can I just stick with the
" WHAT!! no way, find me a solution there has to be a solution!" thingie?

TW :eek:)
~if all else fails we can ask Duncan about tax :eek:)~
 
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"RE: GST, Tax & Property"

Reply: 1.1.1.1.1.2.2.1.1.1.1.1
From: Duncan M


>TW :eek:)
>~if all else fails we can ask Duncan about tax :eek:)~

No worries, I'll forward the questions onto Dale and get back to you :)

Duncan.
 
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Reply: 2
From: Ctrader .


Dale,

Following on from our discussion last night, if I was to purchase a vacant block of land to build a ppor and subdivide and build a property for sale under the margin scheme so as to reduce the GST component on resale of the new property, can I register for GST and claim the GST on the construction costs for the property to be sold on the way through as the sale is income producing?

Also, what are the requirements for purchasing under the margin scheme? How does it effect the vendor?

And is stamp duty calculated on the GST inclusive or exclusive sale price?

Thanks,
Ctrader
 
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Reply: 2.1
From: Dale Gatherum-Goss



>
>And is stamp duty calculated
>on the GST inclusive or
>exclusive sale price?


Hi

OK, bear with me as I try to get my head around your question.

If you buy a block of land to build your PPOR, there is no GST involved.

However, if you sub-divide that land with the intention of building a unit and then selling off that second unit, we would potentially have GST involved.

A lot will depend upon your own individual circumstances and facts. If this is a "one-off" development or something that you plan to do more often the answers might change.

At the moment, the tax office view (which may not be correct at law) is that both situations will require you to register for GST and collect GST on the sale of the property. This registration should be before you start development.

The costs of the development will include GST and this cost can be claimed back from the tax office in a regular BAS.

If the vendor is selling a property under the margin scheme then the purchaser cannot claim the GST at all. The only requirements are for the contracts to show that the vendor has elected to sell the property under the margin scheme.

I understand that the stamp duty is paid on the GST inclusive price of a property.

I hope that this helps.

Dale
 
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Reply: 2.1.1
From: Ctrader .


Thank you Dale,

Let me see if I have this right.

If the vendor elects to sell under the margin scheme, this will reduce the total amount of GST that will be part of the final resale price.
But I cannot claim any GST credits on the construction costs?

If the vendor does not sell under the margin scheme, but is GST registered, the amount of GST will be calculated on the final resale price but I can claim the GST on the original purchase price and the construction costs.

If the vendor is not registered for GST and and does not sell under the margin scheme, I cannot claim back a GST content in the initial purchase price? But will still have to pay GST on the final purchase price and will be able to claim GST on the construction costs.

Ctrader
 
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