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Good News: Treasury pushing remodel of Negative Gearing for only new homes!; Corrupt and vested real estate interest run for cover!
Topic Started: 14 Aug 2014, 09:26 PM (33,894 Views)
miw
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Lef-tee
19 Aug 2014, 07:06 AM
Not too sure what you mean miw. Are you saying that nearly 2 million NGeared LL's don't have enough collective market presence to make a difference?
The fact that there are more or less properties on the rental will make a difference. But changing the law will have no immediate impact on that. The basis by which those IPs are owned has zero impact in the short term. Maybe over 10 years it will have an impact. Maybe.

If you think that a LL can up the rent just because his own costs went up, you might like to try it.
The truth will set you free. But first, it will piss you off.
--Gloria Steinem
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stinkbug
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piccolo
19 Aug 2014, 03:35 PM
True - but for most employees not applicable.
Correct, but only because most employees have a single place of business and don't do work at home.
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While it's true that those who win never quit, and those who quit never win, those who never win and never quit are idiots.

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Shadow
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piccolo
19 Aug 2014, 04:57 PM
And you say driving to work is something you choose to do on your own personal times? I know hundreds of thousands of workers driving to/from work would disagree with you. They drive to and from work to earn income, not because they choose to.
Nobody forces them to drive. They choose to drive because they want to. They could walk, run, cycle, take public transport, or live closer to work, or work from home. In fact lots of people do those things instead of driving.

Look, if you can convince your employer to pay you for traveling to work then you might have a case to argue with the ATO. Good luck.

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other businesses are subject to tests before they can claim a loss against other income. Property investors are not subject to these tests.
Property investors are subject to other tests that don't apply to non-property businesses.

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There is one set of legislation. However that legislation allows more favourable treatment to some forms of investment (namely property)
At the end of the day, the goal is to allow the vast majority of individuals to claim legitimate expenses, regardless of the type of business they choose to conduct. If there needs to be specific rules for specific businessess in order to achieve that goal, so be it.

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If the rules were changed, it would make sense to align the rules for property with that of other businesses as property gets the same tax benefits as other businesses.
I have already agreed with this. The rules should neither favour nor disadvantage people who choose to carry out any particular type of legitimate business, whether that be investing in shares or property or running a gardening business or whatever.
Edited by Shadow, 19 Aug 2014, 05:22 PM.
1. Epic Fail! Steve Keen's Bad Calls and Predictions.
2. Residential property loans regulated by NCCP Act. Banks can't margin call unless borrower defaults.
3. Housing is second highest taxed sector of Australian Economy. Renters subsidised by highly taxed homeowners.
4. Ongoing improvement in housing affordability. Australian household formation faster than population growth since 1960s.
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Elastic
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piccolo
19 Aug 2014, 04:57 PM
However I think you understand all this and are simply arguing for arguments sake.
I don't think you need to go any further Piccolo.
You have stated your points very clearly and I, for one, completely agree with you.
Shadow would probably be happy to muddy the waters a bit further though.
Only a rat can win a rat race.

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miw
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piccolo
19 Aug 2014, 10:57 AM
No I don't think we are splitting hairs here. Most businesses have to pass one of three criteria that property simply does not have to pass. I agree with you on the intent of the rules for normal businesses, however those rules don't apply to property so the intent was clearly to have different (i.e. easier) hurdles for property versus other small businesses. As you said as long as the property or shares generates a return it can claim the losses, whereas any other business must generate $20k worth of revenue. We both know this hurdle would exempt a huge chunk of properties.
We are very definitely splitting hairs. Every kind of business will have its own criteria. If you read the page, you will see that in fact it is guideline only. You can pass the test and still not be allowed the deduction, and you can fail the test and still be allowed the deduction - it is all at the ATO discretion. The big difference as I see it with the buy-to-rent business is that the guidelines are so well-defined that in most cases no correspondence will be entered into.

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I've never personally made an application to the tax commissioner, I'll admit. However I have worked as an accountant for over a decade. You said your shop generated more than $20k so it will have passed the test anyway and wouldn't require an exemption. I've seen a lot of good dealings with the ATO, and a lot of very poor dealings. In my experience it is getting more and more difficult to get any exemptions from the usual rules granted. Can you provide a link for the start-up exemption, I haven't heard of that before?


Strange. My tax accountant has made an application to the tax commissioner on my behalf at least once, and maybe twice. It was no biggie - they wrote a letter for me to sign/approve. The reference to the shop was just to point out that the business test if not at all onerous for any turnover-based business. Turnover-based businesses on the other hand would find many of the stipulations for buy-to-rent very onerous indeed. e.g. cannot claim interest expense for periods when you are on holiday and not trading, cannot deduct any expenses incurred before you actually start trading, etc.

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You say almost all PIs would meet the criteria? Rubbish. I haven't looked recently but the median property price Australia wide is somewhere around $500k, which puts approximately half of properties below that threshold. Of those below $500k, most would generate less than $20k in rental revenue (at least 80%). And we all know that most properties over the first 5 years are usually negatively geared. Even with interest rates at 5%, a rental return of 5% will leave you negatively geared after rates, insurance, landlords insurance, maintenance, rental agents fees. And obviously the past 20 years has generally since interest rates much higher. You may have an argument if you can provide a link to this start up exemption though, I just haven't heard of it.


Anyone who has two IPs would immediately pass the business test. Most of the people who stop at one IP can get to operating profit within a few years. My first IP was profitable after 3. You can be damn sure that if the rules were changed so the business test was relevant, nearly everyone would pass in short order. Most single IPs would pass the $20k turnover test as well if their value was $400k or above.

Follow the links on the page you posted yourself to find more info on the business test and conditions under which they encourage you to make an application for waiver to the tax commissioner.

piccolo
19 Aug 2014, 02:45 PM
Taking the train or bus to work is also not deductible. Driving to your investment property is also done on your personal time and yet it is claimable. In fact all motor vehicle travel incurred to earn income is claimable with the exception of driving to and from the workplace. There is a specific exclusion for it as the government have worked out it saves them a lot of money. Another perk for property investors.
Actually, I think not allowing people to deduct the cost of getting to and from work or the cost of the clothes they have to wear at work is a big anomaly in the tax system. I understand why it is there, but it is an anomaly.

But you cannot just claim the cost of getting to and from your IP. There are specific guidelines about how many times you can claim that - twice a year max from memory. Of course, if you live in Sydney and your IP is in Bali, you can claim airfares, hotel expenses and rental vehicle expenses twice a year. If you had a turnover business with a head office in Sydney and a branch office in Bali then you could claim those expenses as many times as you liked - as long as you weren't operating the business in a non-commercial manner.
Edited by miw, 19 Aug 2014, 05:40 PM.
The truth will set you free. But first, it will piss you off.
--Gloria Steinem
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piccolo
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miw
19 Aug 2014, 05:31 PM
We are very definitely splitting hairs. Every kind of business will have its own criteria. If you read the page, you will see that in fact it is guideline only. You can pass the test and still not be allowed the deduction, and you can fail the test and still be allowed the deduction - it is all at the ATO discretion. The big difference as I see it with the buy-to-rent business is that the guidelines are so well-defined that in most cases no correspondence will be entered into.




Strange. My tax accountant has made an application to the tax commissioner on my behalf at least once, and maybe twice. It was no biggie - they wrote a letter for me to sign/approve. The reference to the shop was just to point out that the business test if not at all onerous for any turnover-based business. Turnover-based businesses on the other hand would find many of the stipulations for buy-to-rent very onerous indeed. e.g. cannot claim interest expense for periods when you are on holiday and not trading, cannot deduct any expenses incurred before you actually start trading, etc.




Anyone who has two IPs would immediately pass the business test. Most of the people who stop at one IP can get to operating profit within a few years. My first IP was profitable after 3. You can be damn sure that if the rules were changed so the business test was relevant, nearly everyone would pass in short order. Most single IPs would pass the $20k turnover test as well if their value was $400k or above.

Follow the links on the page you posted yourself to find more info on the business test and conditions under which they encourage you to make an application for waiver to the tax commissioner.
We are very definitely splitting hairs. Every kind of business will have its own criteria. If you read the page, you will see that in fact it is guideline only. You can pass the test and still not be allowed the deduction, and you can fail the test and still be allowed the deduction - it is all at the ATO discretion. The big difference as I see it with the buy-to-rent business is that the guidelines are so well-defined that in most cases no correspondence will be entered into.

Every kind of business will have its own criteria? Can you post a link, looks to me like one set of criteria for most businesses with a couple of exceptions for artists and primary producers? You can pass the test and still not be allowed the deduction? Can you post a link for that?

Strange. My tax accountant has made an application to the tax commissioner on my behalf at least once, and maybe twice. It was no biggie - they wrote a letter for me to sign/approve. The reference to the shop was just to point out that the business test if not at all onerous for any turnover-based business. Turnover-based businesses on the other hand would find many of the stipulations for buy-to-rent very onerous indeed. e.g. cannot claim interest expense for periods when you are on holiday and not trading, cannot deduct any expenses incurred before you actually start trading, etc.

You paid to have your accountant make an application once or maybe twice. I agree it is easy to make an application, whether or not it gets approved is another matter, in my experience it is becoming much more difficult, particularly post 2008. Do you think most property investors would be happy to do this? That is, pay an extra few hundred bucks to their accountant for an application that probably won't get approved if they don't meet the standard criteria. I don't think so but you may have a different opinion. The couple of situations you've listed seem to relate to share trading? The start up expenses for share trading are bugger all - a comsec account is free you just need $5k deposit. If you've got shares in dividend payers I wasn't aware you couldn't claim interest while you are on holiday, news to me? You are probably referring to share traders as opposed to investors receiving dividends. Makes sense though that if you are a trader you might close out your positions before going on holiday, and therefore not incur interest? The exceptions you've mentioned seem to be share trading only and no or very low cost? That is, free to set up a trading account, and a trader would usually close out their positions and not incur interest while on holiday. Doesn't apply to property investors so not sure where you're going with that anyway.

Anyone who has two IPs would immediately pass the business test. Most of the people who stop at one IP can get to operating profit within a few years. My first IP was profitable after 3. You can be damn sure that if the rules were changed so the business test was relevant, nearly everyone would pass in short order. Most single IPs would pass the $20k turnover test as well if their value was $400k or above.


My one and only investment property cost less than $130k, so not all 2+ property holders would have $500k, but I agree most would. It would be interesting to see a distribution chart of property investors and the value of their properties. My guess is you would get a high percentage, around 50-60% that would invest in cheaper properties i.e. under $500k, and of those most would only have one property. At the other end you would have your APF property bulls with total property worth $2m+. If I had to hazard a guess 30-40% of property investors would not pass the business tests due to not meeting the hurdles, and another 5-10% would not pass the business tests for losses by being over $250k income.

When applying for an exception, the ATO err on the side of not granting the exception. This is evident when you look at the cases that go to court, the ATO actually loses most of them. That is, they will fight it all the way to court even when they are wrong. For every case that goes to court, there would be ten where people just accept the ATOs decision (even when it is wrong).
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Chris
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Shadow, now being a property investor makes you a business owner??

Am I reading this right?
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Shadow
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Chris
19 Aug 2014, 06:49 PM
Shadow, now being a property investor makes you a business owner??
Does owning a mower and cutting peoples lawns for a bit of extra cash at the weekend make you a business owner?

As far as tax law is concerned, property investors, share investors and sole traders are treated pretty much the same in that they can all claim business expenses.
Edited by Shadow, 19 Aug 2014, 07:43 PM.
1. Epic Fail! Steve Keen's Bad Calls and Predictions.
2. Residential property loans regulated by NCCP Act. Banks can't margin call unless borrower defaults.
3. Housing is second highest taxed sector of Australian Economy. Renters subsidised by highly taxed homeowners.
4. Ongoing improvement in housing affordability. Australian household formation faster than population growth since 1960s.
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Elastic
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Shadow
19 Aug 2014, 07:41 PM
Does owning a mower and cutting peoples lawns for a bit of extra cash at the weekend make you a business owner?

Only if you're turning over $20,000 a year and declaring it to the ATO.
Only a rat can win a rat race.

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Shadow
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Elastic
19 Aug 2014, 07:57 PM
Only if you're turning over $20,000 a year and declaring it to the ATO.
Or if you made a profit in three out of the past five years.

Or if the value of your gardening equipment was more than $100K

It would be pretty easy to turn over $20K a year though.

I can't imagine many sole traders turning over less than this. It wouldn't really be worth their while if they couldn't turn over at least $20K.
1. Epic Fail! Steve Keen's Bad Calls and Predictions.
2. Residential property loans regulated by NCCP Act. Banks can't margin call unless borrower defaults.
3. Housing is second highest taxed sector of Australian Economy. Renters subsidised by highly taxed homeowners.
4. Ongoing improvement in housing affordability. Australian household formation faster than population growth since 1960s.
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