I have a question in regard to discretionary trusts. With the recent court case between ASIC v Carey (No.6) [2006] (Westpoint), how should someone looking to set up a discretionary trust go about setting up the structure in the best possible way to provide asset protection?
Regards
Matt

This does not apply to the general use of Discretionary Trust. We have no issue with their continued use.

Regards

Edward Chan

I am thinking of purchasing 5 acres of rural land. How much sales tax do I have to pay and how is it calculated?

Thanks

Colin Poppins.

There is no sales tax on this type of purchase.

Regards

Edward Chan

I currently live in an apartment but will be moving in with my boyfriend at the end of the year when we get married.  I will then rent out my apartment.  A friend of mine suggested that for tax purposes, I should get the apartment revalued by a Property Valuer so that I will know precisely the value of the apartment when it becomes an investment property. Hence, when I sell the apartment 10 years later, the capital gain will be calculated as the difference between the selling price and the valuation. Is this allowable by the ATO? In theory, as property prices generally increase in the long run, the capital gain that is calculated using the above methodology should result in lower capital gains tax when compared to the standard method of calculating the gain as the difference between the selling price and my original purchase price.
For example, if I purchased my apartment for $100,000 and after 1 year I rent it out. I then got the property valued at the same time, and the valuation was $150,000. Ten years later I sell the apartment for $300,000. Hence, the property was used an investment for 9 years. Using my friends idea, my gain should be $150K-$100K=$50K and tax should be calculated on this amount as the value of the property was $150K when it became an investment. 
If using the standard approach then the gain would be $300K-$100K=$200K, but as the property has only been used as an investment for 9 years, then 9/10 of the gain is taxable -- that is: 9/10 * $200K = $180K.
My friends idea results in less CGT, but I'm not sure if its allowable.  Can you please clarify this issue for me.
Many thanks
Megan

To answer your first question, yes you should get a valuation at the point of renting out your apartment. However you can retain your principle place of residence for up to 6 years as long as you do not have a second PPOR.
The idea that your friend mentioned is actually not correct. The correct amount is $150,000 ($300,000 less $150,000) but you will receive 50% exemption if held for 12 months or more. Look on the ATO website for the exact calculation because circumstances may change the way it’s calculated.

Regards

Edward Chan

My partner and I own a unit in Sydney. We paid $606,000 for it in November 07 however are moving to London (again!) in March 09 and are not sure whether to rent it out or sell it. We don't plan to come back to Sydney anytime soon and have been advised it’s now worth close to $700,000. We would need to sell it for at least $680,000 by March 09 to break even on the purchase you see. It will rent for around $600 pw and the mortgage is approx $1,100 pw.

My question is.... If we were to rent it out and live overseas, is there anything we can claim back in deductions (as a loss, rental income etc vs. mortgage) at the end of each tax year? Our only earnings in Australia would be the rent, of approx $28,000 pa and about $2,000 in shares which of course may earn nothing during the year. Does this mean as our income is so low, we couldn't claim much back even though our losses (rental income vs. mortgage/strata/rates etc) each year would be approx $33,000?

Thank you,

Jamie Newbold

The UK has a tax treaty with Australia. Hence as residence of the UK you will need to lodge a UK tax return, add rental income from Australia and deduct expenses.

In Australia you will need to lodge a tax return as a non resident and if there are losses than it may be carried forward.

Regards

Edward Chan

I’m just wanting to know what happens when I move overseas to work for 2-5 years and therefore become a non-resident in the eyes of the ATO? I have 2 negatively geared properties in my own name.

1 – Is it true that I have to pay an ‘equivalent’ CGT on my share portfolio (even though I’m not selling?)

2 – Is there anyway I can still benefit from negative gearing on Australian properties with foreign income?

3 – If I can take advantage of negative gearing with foreign income, is there a way of carrying those losses forward until I come back and if so what is the maximum time limit on carrying losses forward?

Cheers

Ben

Q1 – The short answer is no, you don’t have to pay an ‘equivalent’ CGT on your share portfolio.

Q2 – As a non-resident you will have to lodge a tax return in Australia. Losses can be carried forward and you will need to lodge a tax return in the country of residence. As you have not stated what country you will be residing in I will assume it is a country we will have a tax treaty with. You can lodge a tax return in your resident country and include rental and property expenses and interest.

Q3 – Yes and there is no limit.

Regards

Edward Chan

Send your question to editor@PropertyUpdate.com.au and we'll get one of our experts to answer it.

Just wondering if I buy land initially for investment and claim interest deductions but later on I decided to build house and make it my principal place of residence, do I need to pay back the amount to ATO which I claimed as Interest deductions?

Thanks;
Rishi

No but when you come to sell it will be subject to proportioned capital gains tax.

Regards

Edward Chan

Send your question to editor@PropertyUpdate.com.au and we'll get one of our experts to answer it.

I am currently in the process of purchasing my first investment property. I was hoping you could recommend an accountant who specializes in property investment. I live in

Collaroy Plateau in Sydney.

Regards,

Daniel

I can refer you to Chan & Naylor Pymble- Speak to Pablo Morales-Nogues Ph: 9391 5000

Regards

Edward Chan

Send your question to editor@PropertyUpdate.com.au and we'll get one of our experts to answer it.

We are a young family who is looking at investing in property.  We live on a large block and we're considering subdividing the land and putting a unit on the back. However we have been told that the primary property that we live in will be subject to capital gains tax when the land is subdivided. Could you please let me know of any other taxes or little surprises that we may not be aware of with subdividing our land?

Thanks for your time 

Carolyn

The home you live in is still your PPOR and exempt from CGT. The unit on the back will be subject to CGT if sold, however if you don’t sell it, there will be no CGT payable.

Regards

Edward Chan

Send your question to editor@PropertyUpdate.com.au and we'll get one of our experts to answer it.

I can't quite get my head around the long term CGT impacts of the Living Off Equity strategy. By Living off Equity, I mean generating a personal income from loan proceeds drawn against the equity and continuing appreciation of a property portfolio through finance.

With this strategy we assume that the value of the property portfolio keeps going up, and through finance the balance of loans owing on the property keeps increasing with interest being capitalised back into the loans at a slower rate than the growth of the whole portfolio. Although the strategy is to hold property long term, at some point in the future the property would have to be sold (ie trust vesting date etc) or through a change in circumstance or overall property strategy. 

1/ So my concern is if the LVR of the dwelling had been maintained through finance at perhaps up to 80% with the majority of this loan not tax deductible, could you be looking at a situation where the CGT liability was greater than the equity available in the property?

2/ I guess if the only income being received at the time the CGT liability was incurred (sale date of the property) were loan proceeds, then because loan proceeds are not classified as taxable income, the income tax rate would be zero hence the CGT liability would be zero as well?

I would appreciate it if you could explain the CGT implications of this strategy, if possible with an example?

Regards

Richard.

Q1 - This could happen. However the LVR will never go above 80% and as one gets older, the LVR drops down further. Also the capital gain is reduced by 50% if the property is held for more than 12 months.

Q2 - This is not right. The CGT is calculated by taking the difference between the purchase price and the sale price, less 50% exemption if the property is held for more than 12 months. 

Regards

Edward Chan

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