Active Property Network monthly meeting notes

8-Jul-08

Investor vs Trader

Investor:

* 12 months CGT exemption applies on contract date. NOT settlement date
*Capital gain cannot offset other form of income
*PPOR exemption
*Capital Gain = Sale price
- selling cost
- Purchase price & purchasing cost
- Initial Repairs and other capital expenses
+ Capital allowances & building write off claimed

Property Trader-
*Tax applies on settlement date
*Property viewed as trading stock; It can be valued at cost or at market value
*Costs directly related to property get added to stock value
*Holding costs such as interest rate, rates can be claimed as deduction in the year incurred
*No PPoR exemption if deemed a trader

Change of intention is a trigger for events. ATO uses the intention on the loan document
When claiming property expenses as home office expenses, generally

< 25% claim – home office
> 25% claim – place of business

Discretionary Trust

Only need to name one primary beneficiary. Income can still be distributed to other family member.
Don’t name the whole family as banks sometimes require every beneficiary as guarantor

It does not matter whether the trustee is company or individual. Ideally the person named as director should be different person from the trustee.
To get 30% tax rate, the company needs to be named as beneficiary. When a company is named as beneficiary, it’s called a bucket company

GST

GST registration is required for entities trading as an enterprise, or where the turnover (excluding capital asset sales or input tax sales) > 75k

GST applies to
*Commercial properties
*Land
*“New” residential properties – If you build a property, then rent it out for 5 years before you sell, then it’s no longer a “new” property. GST charge is therfore not required in this case. However, you do have pay back GST claimed when you built it. It’s called an “adjustment”.
*“Substantially renovated” residential properties – to be “Substantially renovated”, every room in the property needs to be renovated
You cannot claim GST on expenses related to non GST taxable income.

Marginal Scheme

Marginal scheme applies if
* You bought a property from someone not registered for GST
* You bought a property from someone who applied marginal scheme

To apply marginal scheme, both parties must agree to it.
Just because you are not registered fro GST, it does not mean you don’t have to pay for GST.


GST on Marginal scheme = (Sale Price – Purchase price)/11
Ignore the purchase costs

e.g.,

Purchase Price 250k, no GST included
Stamp duty 12k, no GST included
Building cost 330k, 30k GST claimed
Sale Price 720k

In this case, GST payable on sale under marginal scheme is (720-250)/11 = 42.73k
If not under Marginal scheme, GST Payable would be 720/11 = 65.45k

Finance

What banks look at:
*Repayment capacity
*Employment history: same industry (usually 2yrs)
*ABN: usually 2 YEARS
*Credit history: any arrear or default, reasons
*Deposit: Savings/FHO grants
*Residential history: usually 2 years in the same address
*Property Type: Standard residential, warehouse conversion, vacant lands are commonly accepted; Rural residence may affect maximum LVR

To be a successful investor, you need to work on lasting relationship.

Every time an agent rings, it’s an opportunity to find out about the market. Ask “Can you give me past sales?”
Tell them “Thanks for ringing me. It’s great talking to you!”
Treat them like human beings, and they will treat you the same.

Accountability Buddy

Be in contact once a week, tell you accountability buddy

*What you have done
*What you haven’t done
*What I found easy
*What I found difficult