Tax issue

[new class]

Reply: 3.1.1.1.2.1.1.1
From: Anony Mouse


Going back a few steps;
What in the forums opinion is the best way to handle a situation where the first PPOR is paid out and is subsequently used as an IP?. ( I ask because I know a number of people in this situation)
The only solution I can think of, is to sell the property to a trust fund, at market rate.
The trust would rent the property out and any profits would be passed on to beneficiaries. The mortgage could be used as security to purchase another IP.
So you would get to keep your cake and eat it.
Anyone care to critique?

"A government that robs Peter to pay Paul can always count on the support of Paul."
Of course, Paul's support is obvious, but it is equally obvious that to rob from Peter to pay Paul will make Peter
very, very angry.
My question is this: "How can you run a good government with a sore Peter?"

 

[Sim]

Reply: 3.1.1.1.2.1.1.1.1
From: Sim' Hampel


Do exactly what we do... take out an equity loan against the property and use that money for deposits on IPs... the interest is fully tax deductible because the borrowed funds are being used for investment purposes. Simple.

Doesn't matter whether it's in a trust or not.

 

[new class]

Reply: 3.1.1.1.2.1.1.1.1.1
From: Anony Mouse


Sorry Sim'
I rushed off the question without maybe making myself clear.
A number of people I know are in the following situation.
1. They own or have almost paid off their PPOR say called A. They have not yet gotten in property investment.
2. They decide to move to another PPOR say B. This decision is made on lifestyle considerations only, not investment considerations.
3, They decide to keep A for some reason, it may be in a high growth area etc.
4. They now have a vacant property A which they can rent out. This property will produce an income, but they will have very little or no tax protection( deductions).
Question - what is the best way out of this situation

"A government that robs Peter to pay Paul can always count on the support of Paul."
Of course, Paul's support is obvious, but it is equally obvious that to rob from Peter to pay Paul will make Peter
very, very angry.
My question is this: "How can you run a good government with a sore Peter?"

 

[WebBoard]

Reply: 3.1.1.1.2.1.1.1.1.1.1
From: Steve Piggott


Converting PPOR to IP!
Yep I would have to go with Sim... sell it to your corporate entity. Then use the equity to purchase another PPOR or IP. The trustee of course has the responsibility of the mortgage for the trusts' ( or companys')
newly acquired IP. Or you purchase a new property that you intend to live in a corporate structure and rent it to yourself!
And the rental income from your original PPOR will cover some or most of the rental for the Trusts' new IP. No problems as long as you do NOT rent the new Trusts' IP at less than fair market rental rate. This is probably a bit technical for the older folk who have paid off their homes. Im sure a good accountant /lawyer could explain.

Do people still use offset accounts?thought the idea was to borrow from the bank NOT lease your cash to them at very poor returns!! Every dollar in the bank is a dollar uninvested!

3 things in investing!!
Control, Leverage, Compounding.
Happy Investing Neb

 

[Rolf Latham]

Reply: 3.1.1.1.2.1.1.1.1.1.1.1
From: Rolf Latham


Hi Steve

The main use of offset accounts is not to invest with the bank but to invest in your own mortgage. 6 % tax paid with first mortgage security on as little as one dollar with immeidiate liquidity is not a shabby return.

Mostly these things should be used for transient cash, stuff that you will eventually spend throughout the month like your wages, rent etc.

Ta
Rolf

 

[Sim]

Reply: 3.1.1.1.2.1.1.1.1.1.1.2
From: Sim' Hampel


On 1/10/02 11:49:00 PM, Steve Piggott wrote:
>Converting PPOR to IP!
>Yep I would have to go with
>Sim... sell it to your
>corporate entity.

I didn't suggest this. Go speak with a good accountant before you get into this kind of thing. The costs of moving between entities may seriously diminish your returns and there are tax traps. I think you need professional advice and to do a serious cost/benefit analysis before you even think about it.

>Then use the
>equity to purchase another
>PPOR or IP.

Why not just leave it as is and use the equity to buy PPOR (interest not deductible) or IP (interest deductible) or both (have to apportion interest between deductible and non-deductible) ?

The only compelling reason I see to move it into another entity is for asset protection

>Or you purchase a new property
>that you intend to live in a
>corporate structure and rent it
>to yourself

Be very very careful of this. I know this is discussed commonly in the forum, but there have been some recent warnings from the ATO about such contrivances - they are investigating this now. This needs especially good accounting advice to ensure that you will not be on the receiving end of the ATO's "big stick".

 

[Sim]

Reply: 3.1.1.1.2.1.1.1.1.1.1.1.1
From: Sim' Hampel


Like Rolf said !

Indeed, we keep an amount of cash set aside for emergency use (a form of insurance), and we keep this in an offset account, which gives us much better returns than in something like an ING account.

Of course, there is no reason that you couldn't keep spare credit cards or a bit of a LOC available for emergency use, but my view is that if we ever do need to use the funds - then we are in a pretty awkward position and getting into more debt is the last thing we want to be doing.

Also, all our salaries go into the offset account and then all expenses and investment debits are taken from the account - so any residual money is working hard for us while it is there. The benefit may be small, but compounded over a years of such usage, it really does have an impact.

Offset accounts are not about making money and I don't really consider them an "investment" as such, they are merely a tool to ensure that all my cash is working for me all the time.

 

[new class]

Reply: 3.1.1.1.2.1.1.1.1.1.1.2.1
From: Anony Mouse


Sim' wrote:
On 1/10/02 11:49:00 PM, Steve Piggott wrote:
>>Converting PPOR to IP!
>>Yep I would have to go with
>>Sim... sell it to your
>>corporate entity.

>I didn't suggest this. Go speak with a good >accountant before you get into this kind of >thing. The costs of moving between entities >may seriously diminish your returns and >there are tax traps. I think you need >professional advice and to do a serious >cost/benefit analysis before you even think >about it.

I suggested this route, wanted to bounce the idea around, before going any further.

>>Then use the
>>equity to purchase another
>>PPOR or IP.

>Why not just leave it as is and use the >equity to buy PPOR (interest not deductible)

This the situation in scenario outlined.
Question is how to rebaptise this stinking fish into a sweet smelling, tax deductible fowl.

>or IP (interest deductible) or both (have >to apportion interest between deductible >and non-deductible) ?

Too late in the scenario outlined

>The only compelling reason I see to move it >into another entity is for asset protection

>>Or you purchase a new property
>>that you intend to live in a
>>corporate structure and rent it
>>to yourself

>Be very very careful of this. I know this >is discussed commonly in the forum, but >there have been some recent warnings from >the ATO about such contrivances - they are >investigating this now. This needs >especially good accounting advice to ensure >that you will not be on the receiving end >of the ATO's "big stick".

Agree with you here, see:

http://law.ato.gov.au/atolaw/view.htm?docid=TPA/TA20011/NAT/ATO/00001



"A government that robs Peter to pay Paul can always count on the support of Paul."
Of course, Paul's support is obvious, but it is equally obvious that to rob from Peter to pay Paul will make Peter
very, very angry.
My question is this: "How can you run a good government with a sore Peter?"

 

[Sim]

Reply: 3.1.1.1.2.1.1.1.1.1.1.2.1.1
From: Sim' Hampel


"It would seem that the arrangement may have the dominant purpose of enabling deductions to be claimed for essentially private expenditure"

I think it is this line which the ATO will begin to use more and more to "tighten the noose" on such creative finance arrangements.

You just need to go back to your expert accountant and ask what other strategies you can validly use to maximise the returns on your investments - using tax effective strategies if need be. If your accountant shrugs his shoulders and says "too hard", maybe it's time to find a better accountant.

 

[WebBoard]

Reply: 3.1.1.1.2.1.1.1.1.1.1.3
From: Terry Avery


I can't really see the point in selling a property you already own into
another structure you control as you will incur stamp duty on the sale.
Also I cannot understand why tax minimisation seems to be so prominent
in people's minds that they hate making a profit from their rents. If
you feel the tax on the rent is too onerous then borrow against the
house equity to buy more IPs and then you will have more deductions to
offset the tax. If you keep the PPOR on the original home then you can
rent for up to six years without losing the CGT exemption. You need to
crunch your number thoroughly. I did and the answer for me was
transferring the properties involved unnecessary stamp duty costs. For
future purchases then you may want to put them in a company structure
but you will lose the 50% CGT exemption should you decide to sell.

Cheers

Terry

 

[new class]

Reply: 3.1.1.1.2.1.1.1.1.1.1.3.1
From: Anony Mouse


Thanks Terry for the comments.

Yeah,I hate paying tax, it must be psychological or my libertarian leanings, but as Kerry Packer said to the Senate inquiry "why should I pay you guys tax, you are only going to waste it"

"A government that robs Peter to pay Paul can always count on the support of Paul."
Of course, Paul's support is obvious, but it is equally obvious that to rob from Peter to pay Paul will make Peter
very, very angry.
My question is this: "How can you run a good government with a sore Peter?"

 

[duncan_m]

Reply: 3.1.1.1.2.1.1.1.1.1.1.3.1.1
From: Duncan M


Correct me if I'm wrong but I believe his actual quote was somewhat more eloquent and was along the lines of:

"Anybody in this country who does not minimise his tax wants his head read--I can tell you as a government that you are not spending it so well that we should be donating extra."




Big it up for Kerry Packer, he da man!

Regards,

Duncan.

 

[new class]

Reply: 3.1.1.1.2.1.1.1.1.1.1.3.1.1.1
From: Anony Mouse



Touche Duncan
Should have said- to paraphrase Kerry Packer, I was too lazy to look up quote, and yes
he da man!

"A government that robs Peter to pay Paul can always count on the support of Paul."
Of course, Paul's support is obvious, but it is equally obvious that to rob from Peter to pay Paul will make Peter
very, very angry.
My question is this: "How can you run a good government with a sore Peter?"