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From: Judy Kaye


Hi

just starting over

I would love to positive gear. In our situation there is not much choice in the matter. We rent a property currently for $210 a week.We have $30k in the bank. After a lot of searching, reading, talking to people and getting advice have decided to purchase one property @ $45k and a second property @ $130k. both of these properties will be negatively geared. We will rent one to ourselves ( the best tenants you could ever have). This is the best i can come up with. Does anyone have any brighter ideas.

cheers

kiwi
 
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Reply: 1
From: Mike .


Hi Judy,

Please clarify what you mean by: "We will rent one to ourselves (the best tenants you could ever have)" and will negatively gear the property.

I'm slightly confused since you can't pay yourself rent and claim this as assessable income for tax deduction purposes.

In the Tax Pack you are required to add the net income from rentals to the income from your job to arrive at the total assessable income. This means the rental income must come from another source other than your wages.

Apart from that, there is the principle of mutuality which suggests that payments to yourself that are not of a business or commercial nature are not deemed as taxable income. This principle mainly relates to clubs but applies to individuals as well. Here is some info on the ATO website:
http://www.ato.gov.au/content.asp?doc=/content/notforprofit/8606.htm

Regards, Mike
 
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Reply: 1.1
From: Paul Zagoridis


Mike

Of course they can. Simplest way is to purchase the property in an entity they control (singly or jointly), A trust is often a good entity here. Provided they pay market rent the expenses are deductible to the entity (income producing asset).

As for writing off the losses against other income -- there are many ways to achieve that as well, even if there is no income but wages. I won't go into detail here, talk to a competent advisor.

Paul Zag
Dreamspinner
Oz Film Biz is at
http://www.healey.com.au/~paulz
 
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Reply: 1.1.1
From: Mike .


Hi Paul,

Just responding to your post just in case you think I didn't know that.

I just thought perhaps Judy wasn't using a trust or company structure since she is buying negatively geared property which I assumed wouldn't reduce her taxable income.

However, you say there are ways this can be achieved. So perhaps Judy knows about this, as well.

Regards, Mike
 
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Reply: 1.1.1.1
From: Judy Kaye



Hi

Thankyou Mike and Paul for your replies. Yes I am aware that there is a need to keep the transaction at arms length and that to achieve this you must purchase the property using a company etc. and pay market rental rates. I have spoken with accountants who have confirmed this for me. The next step is to make formal appointments and tailor arrangements to suit our specific needs and goals.(find out the nuts and bolts of the arrangement). as you mentioned Paul.
The reason i posted was to say that initially it does seem that to negatively gear is the only way of getting going given current financial positioning. I would love to positive gear and that's the goal to work towards. I hoped that perhaps someone on the board might have looked at what we were proposing to do and seen other possible options for investigation.

Cheers

I'm glad i posted as replying has clarified things in my own mind.

Judy.
 
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Reply: 1.1.1.1.1
From: Paul Zagoridis


Hi Judy

In order to offer any better ideas we'd really need some more detail. like - rental returns on your $45K and $130K purchases.

I'm a big fan of positive cashflow. once you have positive cashflow you can negative gear (cash component) to the extent of your positive cash. That way you keep your non-cash deductions and can afford to lose your job without going bankrupt.

Most people don't like the areas that generate standard positive deals. That means that they have to add value to a cheaper property. That is riskier and tough in Eastern capital cities right now.

So the search for positive cash flow properties is like hunting the holy grail, many believe it doesn't exist. In reality it is difficult but not impossible. That may not be appropriate for you.

Just remember that at any time in Australia's history, you could retire in ten years wealthy if you bought one median priced house per year. Provided you didn't go broke in that 10 years.

If you have more questions please post them.

Paul Zag
Dreamspinner
Oz Film Biz is at
http://www.healey.com.au/~paulz
 
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