Firstly, many thanks for the newsletter. I find it very interesting and helpful in my work as a finance broker. Often I pass your details on to clients who are looking to invest for the first time. Some which have actually contacted you- or so they tell me. 

My query is about companies who pop up out of the blue trying to convince me that Property Options are the way to go.

All we have to do is give them an amount of money and they go looking for suitable properties and vendors who are willing to wait a year or 2 before selling, during which time this company will look at  improving the saleability of the property by gaining development approval or the like and then when the time is up they look to on-sell at a huge profit. In the meantime part of the money handed over to them is pooled and the return on this money (which is a restricted amount)is 3% per week! Lowest amount is $4,500 (with a $9,000 product fee) and the most at this time is $25,000 ($38,000 product fee) producing a healthy $750 weekly return! This goes on while they are looking to buy a property and is guaranteed for 5 years.

Is this one of those "Too good to be true" things or is it feasible.

They seem to be a hard sell group who pester you until you tell them where to go or do business.

A friend and colleague is considering this avenue and I'm concerned for his wellbeing.

Dennis & Sue

Thanks for your question and kind words about our newsletter. Go with your gut feeling and know that if it sounds too good to be true – it usually is!

You are right that there are always "interesting" people in the property industry and particularly people who make it sound easy.

Property investment is a long term business – not a way of making quick easy profits. It's very enticing to sell the concept of putting little or no money down and in a couple of years you'll make lots of money with minimal effort.

Of course that's not the way property works and that's not the way the world works. Be very cautious about giving your money to people unless you know their track record.

Think about it – why would a vendor want to sell a property today on an option for a couple of years? This is rarely something that happens to good properties – good properties get snapped up at market price and the vendors don't have to give an option to sell the property. I would advise to look at other areas to invest your money in.

Regards
Michael Yardney
Director – Metropole Property www.metropole.com.au

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Wallace, thanks for your question.

I would first ask what experience you have in property development? If you are not experienced one of the biggest dangers is you don't know what you don't know.

My understanding of the NZ property market is that it's still going to remain flat for a couple of years and I have found it very difficult to make development profits in a flat or falling market.

Don't believe what an estate agent or developer tells you, do your own due diligence carefully.

If you don't have the experience, ensure that a properly qualified independent source does your due diligence for you. In particular get a detailed pre-purchase feasibility study to ensure you've taken into account all the potential development costs.

Regards
Michael Yardney
Director – Metropole Property www.metropole.com.au

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Our family currently lives in a 4 bedroom house in Carindale, and we have recently bought an investment property out in Redcliff.The house that we are living in is to small for the family.What we plan on doing is to rent this house out and get another rental property to live in, as the houses in Carindale are expensive and we want to live closer to our kids school.The question is if we will still get the full tax benefit if we rent another property or should be rather buy another house again?

Regards
Chris and Emetia Grobler

Yes it' can be a lot more economical to rent somewhere yourself and claim the interest on the mortgage on your existing home (assuming it is geared up). I need more details to work out the numbers for you.

However if you wanted to buy somewhere to live in yourself and to have it all commercially viable and tax effective you need to discuss this with a Consultant from Chan & Naylor. We have an office in Brisbane. This can be done and is dependant on the numbers. 

Regards
Edward Chan
Chairman – Chan & Naylor Australia www.chan-naylor.com.au

TO READ PAGE TWO PLEASE CLICK HERE

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Scenario 1: Age less than 60 yrs old
Say taxable portion of capital gains tax is $100k in a year. If $100k is invested in super, is only 15% contribution tax payable and no other income tax on this capital gain?
Scenario 2: Age more than 60 yrs old:
As above. Then there is no contribution tax paid on investment in super and no income tax paid?
Thanks
Rocky

Scenario one: Answer:  For persons born after 30 June 1964, the preservation age is 60. The significance of the preservation age is more the preferential tax treatment of benefits paid out of super after the preservation age rather than contributions made into super. 

If you have made the capital gain outside of superannuation, then it is subject to capital gains tax (CGT) under the normal rules applying to CGT. It is simply calculated at your marginal tax rate based on your total income for that year.

Insufficient information is provided to be able to conclude whether concessional or non-concessional super contributions apply to you. From 1 July 2007, if a person is self employed or earn less than 10% of their total income from employment, they can claim a full income tax deduction for personal contributions they make up to age 75. These concessional contributions have an annual cap of $50,000 (indexed), but if a person is over 50 then transitional arrangements apply, ie they can contribute up to $100,000 p.a. until 30 June 2012). A 15% contributions tax applies to concessional contributions.

However if you are not self employed, your personal contributions to super will generally be non-concessional contributions.  If the after tax proceeds of the capital gains are invested in super, then this would be regarded as a non-concessional contribution and the 15% contribution tax would not apply. For non-concessional contributions a cap of $150,00 per person per year generally applies. If you are under the age of 65 a cap of $450,000 (under the 3 yr averaging rule) for non-concessional contributions is applicable. You can bring forward the $150,000 annual contribution. For example, you can contribute $450,000 in one year but you will not be able to contribute in the next two years. Another example is if you contribute $200,000 in one year, then you will only be able to contribute a total of $250,000 in the next two years.

You should discuss your situation with a licensed adviser from Chan & Naylor. 

Scenario 2:Answer:  As mentioned above, for persons born after 30 June 1964, the preservation age is 60. The significance of the preservation age is more the preferential tax treatment of benefits paid out of super after the preservation age rather than contributions made into super.  

The CGT implication in Scenario 1 above applies to capital gains made outside of superannuation as do the comments on concessional and non-concessional contributions. You can make contributions to your super until you turn 75 as long as you work at least 40 hours in 30 consecutive days in a financial year.  A contributions tax of 15% applies if concessional contributions are made. Your earnings in super will generally be taxed at 15%. You can keep your savings in super indefinitely as there are no compulsory cashing out rules. Super benefits are tax-free if paid from a taxed source (eg from undeducted contributions / non-concessional contributions) and you are 60 or over.   

Regards
Edward Chan
Chairman – Chan & Naylor Australia www.chan-naylor.com.au

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Yes that is correct but needs to be set up properly otherwise you could breach Super Rules. This needs a one on one consultation with a Chan & Naylor Consultant 

Regards
Edward Chan
Chairman – Chan & Naylor Australia www.chan-naylor.com.au

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We would like however like be able to help our sons get into the property market, using the equity we have in our home, which is substantial.  Is there a way we could do this (legally) without actually giving away money and trusting them to repay? We see this as a potentially dangerous move. We want to help them but we also must protect ourselves. Should we see a lawyer or financial advisor?

Some advice would be appreciated.

Thanks
Georgina