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.
Yeah, I understand the tax ruling and it's wording but it has just been lumped in with business as the same tax ruling applies. I don't think anyone genuinely believes property investment as an individual could be, would be or should considers a business by anyone other than the tax office based solely on the dual use of NG in both realms.
Do you honestly believe that as an investor you are a business owner?
Do you honestly believe that as an investor you are a business owner?
Personally, I wouldn't describe myself as a 'business owner'. Nor would I describe a share investor or a guy with lawnmower as a 'business owner'.
But we all 'do business' and earn income via individual (i.e. sole person) enterprises, and should all be equally able to claim legitimate business expenses.
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.
I was perfectly happy to do it. The accountant expected it would be granted, and it was. Why would your average PI not make application for deductions if they were likely to be approved? It was to do with property.
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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.
First of all, the test is not based on buy price. It is based on value of assets. Second, I disagree with your assessment of the percentages. And if the tests were being applied almost all those who currently do not pass and cannot get a condition waived *ON THE BASIS OF REASONS SUGGESTED BY THE ATO* could change their arrangements to do so very quickly, either by changing their expense structure or by adding assets. I agree that the $250k income test is a significant difference between investment-type business and turnover-style business.
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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).
This is not really an exception. The ATO website says quite explicitly that you can apply for a waiver of the conditions if (a) your not meeting the hurdle is due to unusual circumstances or (b) The business is just starting and you are still in the lead time to profitability. It is just that you have to present evidence of this to have the deduction allowed. I would expect that those who apply in good faith would have little trouble with this.
Shadow
19 Aug 2014, 08:05 PM
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.
Or if you just bought the mower and other plant last year and you can show that, despite the fact that you were not profitable last year or this year, you are on the path to profitability.
Or if you can show that under normal circumstances you would have passed one of the hurdles, but to unusual circumstances you missed them all.
Chris
19 Aug 2014, 08:18 PM
Yeah, I understand the tax ruling and it's wording but it has just been lumped in with business as the same tax ruling applies. I don't think anyone genuinely believes property investment as an individual could be, would be or should considers a business by anyone other than the tax office based solely on the dual use of NG in both realms.
Do you honestly believe that as an investor you are a business owner?
I absolutely consider my rentals to be a business and I run it as such. A capital-intensive business to be sure, but still a business. In fact I'd say if you don't run it as a business you will do badly, and there are obviously some people who are in the business who do not realise this.
Which definition of "business" would you say it does not conform to?
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.
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.
You are starting to get it Shadow. This hurdle is there to distinguish genuine businesses from other enterprises. A sole trader or small business owner running a real business should be able to get to $20k turnover, and the reason this is easy for most businesses is because they are selling goods or services which require human labour either in doing the services or producing the goods. Buying a property and collecting rent is an investment (i.e. there is minimal human labour involved in achieving the ongoing rent), and as such the expenses claimed should be limited to the income received, i.e. the taxpayer should not be subsidising your investment. I've got no problem with carrying the losses forward however. The ability to claim losses against other income for real businesses provides some tax relief for those willing to take the risk and put money into the economy. Building a new house requires significant human labour so I can see the argument for allowing negative gearing on investing in new builds. Swapping money or assets for human labour keeps the economy running and is what real businesses are built on.
I was perfectly happy to do it. The accountant expected it would be granted, and it was. Why would your average PI not make application for deductions if they were likely to be approved? It was to do with property.
First of all, the test is not based on buy price. It is based on value of assets. Second, I disagree with your assessment of the percentages. And if the tests were being applied almost all those who currently do not pass and cannot get a condition waived *ON THE BASIS OF REASONS SUGGESTED BY THE ATO* could change their arrangements to do so very quickly, either by changing their expense structure or by adding assets. I agree that the $250k income test is a significant difference between investment-type business and turnover-style business.
This is not really an exception. The ATO website says quite explicitly that you can apply for a waiver of the conditions if (a) your not meeting the hurdle is due to unusual circumstances or (b) The business is just starting and you are still in the lead time to profitability. It is just that you have to present evidence of this to have the deduction allowed. I would expect that those who apply in good faith would have little trouble with this. Or if you just bought the mower and other plant last year and you can show that, despite the fact that you were not profitable last year or this year, you are on the path to profitability.
Or if you can show that under normal circumstances you would have passed one of the hurdles, but to unusual circumstances you missed them all. I absolutely consider my rentals to be a business and I run it as such. A capital-intensive business to be sure, but still a business. In fact I'd say if you don't run it as a business you will do badly, and there are obviously some people who are in the business who do not realise this.
Which definition of "business" would you say it does not conform to?
I was perfectly happy to do it. The accountant expected it would be granted, and it was. Why would your average PI not make application for deductions if they were likely to be approved? It was to do with property.
Perhaps you have a little more time and money on your hands than the average property investor. Regardless it is not 'likely' to be approved. It is at the discretion of the ATO if applying for an exception. In the environment with tax receipts falling it is highly unlikely to be approved if it does not conform to the rules.
First of all, the test is not based on buy price. It is based on value of assets. Second, I disagree with your assessment of the percentages. And if the tests were being applied almost all those who currently do not pass and cannot get a condition waived *ON THE BASIS OF REASONS SUGGESTED BY THE ATO* could change their arrangements to do so very quickly, either by changing their expense structure or by adding assets. I agree that the $250k income test is a significant difference between investment-type business and turnover-style business.
You keep getting caught up on thinking that the ATO is going to grant everyone who wants an exception to the rules an exception. It is at their discretion, and most of the time the response is no (particularly post GFC). From the ATO website they say the following "Special circumstances include bushfires and oil spills but don't generally include economic changes." Does that sound to you like they are going to give every Tom, Dick and Harry an exception? When they are listing reasons like bushfires and oil spills as possible exceptions it has to be pretty serious.
This is not really an exception. The ATO website says quite explicitly that you can apply for a waiver of the conditions if (a) your not meeting the hurdle is due to unusual circumstances or (b) The business is just starting and you are still in the lead time to profitability. It is just that you have to present evidence of this to have the deduction allowed. I would expect that those who apply in good faith would have little trouble with this.
Yes it is an exception, the rules are stated quite clearly. Covered above, the ATO considers things like bushfires and oil spills to be unusual circumstances. The ATO says the following about start ups possible being granted an exception.
"Due to the nature of the activity, there is a lead time before the business will make a tax profit an objective expectation, based on independent evidence, that it will make a profit in a time that is considered commercially viable for that industry."
An primary producers exception is an example of what they will allow here. Even then, I know first hand of someone I work with having to go all the way to court to claim their losses on their farm due to long lead time. They don't give out these exceptions willy nilly.
I absolutely consider my rentals to be a business and I run it as such. A capital-intensive business to be sure, but still a business. In fact I'd say if you don't run it as a business you will do badly, and there are obviously some people who are in the business who do not realise this.
Which definition of "business" would you say it does not conform to?
Whether investing in property is a business is an argument that could go on forever. However the fact that you refer to it as an 'investment style business' indicates to me that you really think of it as an investment, like I do. Sure you watch your investments closely, and try to get the maximum return out of them, but investments nonetheless. Someone with multiple properties I would think of as an investor, or possibly an asset manager, but probably not a business owner. Most would not refer to themselves as business owners.
Buying a property and collecting rent is an investment (i.e. there is minimal human labour involved in achieving the ongoing rent), and as such the expenses claimed should be limited to the income received
That may be your own personal opinion, but it's not my view, nor is it the view of the government / ATO, nor the majority of voters. Buying and maintaining property to rent is just as legitimate an endeavour as buying shares or mowing lawns or any other endeavour that an individual might conduct with the aim of bringing in some extra income.
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the taxpayer should not be subsidising your investment
The housing sector is the second highest taxed sector of the economy, contributing $40 billion NET revenue for the government per year via stamp duty, land tax, tax on rental income, GST on new dwellings, rates, development fees etc. The truth is highly taxed property owners are subsidising essential services for low taxed renters.
The tax deferred (not forgone but just deferred) via negative gearing is a drop in the ocean, and if those losses were not claimed against personal income today then they would simply be claimed against future IP income tomorrow. The net result is zero - the government doesn't lose any money over the long term by allowing expenses to be claimed immediately rather than carrying them forward.
So the 'taxpayers' (by which you really mean 'renters') are not subsidising anything. The 'taxpayers' are actually subsidised by the $40 billion net government revenue contributed by the housing sector every year. So remember that next time you drive on a road or use a hospital or take your kids to school. Taxes taken from homeowners enable you to do all that. We're sudsidising you. But you don't hear us whinging about the unfairness of it all.
Construction of residential or commercial property is a business.
Leasing of commercial property from under a company is a business.
A mum and dad buying an existing property under their name is not a business.
I think both commercial and residential property brought for investment should only be owned by a particular business entity - and all deductions for interest, maintenance etc should only be claimed within that particular entity. The business entity would then pay the owner a profit or a salary. It would also accumulate losses as any business would. There should be ability for banks to call in loans, high deposit etc - Just like with commercial property.
This mum and dad investors bullshit is out of hand.
Let me assure you that this isn't one of those shady pyramid schemes that you've been hearing about. No sir, our model is the Trapezoid which guarantees each investor an 800% return within hours. Those who can, do. Those who can't, teach. "It's an itchy blanket, it's designed to remind you how lucky you are"
The housing sector is the second highest taxed sector of the economy, contributing over $40 billion NET revenue for the government every year via stamp duty, land tax, tax on rental income, GST on new dwellings, rates, development fees etc. The truth is highly taxed property owners are subsidising essential services for low taxed renters.
Absolute bollox. BTW, are you including a family who own and live in a home part of your "housing sector"? Id say it would be news to them that they are part of any sector let alone your sector.
And the link in your sig basically admits as much.
Property acquisition as a topic was almost a national obsession. You couldn't even call it speculation as the buyers all presumed the price of property could only go up. That’s why we use the word obsession. Ordinary people were buying properties for their young children who had not even left school assuming they would not be able to afford property of their own when they left college- Klaus Regling on Ireland. Sound familiar?
The evidence of nearly 40 cycles in house prices for 17 OECD economies since 1970 shows that real house prices typically give up about 70 per cent of their rise in the subsequent fall, and that these falls occur slowly. Morgan Kelly:On the Likely Extent of Falls in Irish House Prices, 2007
I thought you never lie ( which I took to mean, naturally, that you regularly lie but like all good liars its mainly by omission)
Please go and take a look a state Government Treasure tax income, look a Federal Government tax income.
Then take a look at how much the Federal Government pays in Negative gearing.
You will find when you look at the facts, Shadow is spot on. The Government collects $40 billion more per year from the property market then it pays out in Negative gearing.
If you think Shadow is wrong prove it, with links from State/Federal Treasuries showing such. You wont be able to as it will show you what Shadow posted.
I know you don't like it, but facts are facts. Prove otherwise.
Please go and take a look a state Government Treasure tax income, look a Federal Government tax income.
Then take a look at how much the Federal Government pays in Negative gearing.
You will find when you look at the facts, Shadow is spot on. The Government collects $40 billion more per year from the property market then it pays out in Negative gearing.
If you think Shadow is wrong prove it, with links from State/Federal Treasuries showing such. You wont be able to as it will show you what Shadow posted.
I know you don't like it, but facts are facts. Prove otherwise.
I just did. Follow the links.
And btw Mike the onus is not on me to prove him wrong anyway.
I didn't make the bullshit assertion in the first place.
I'm just calling it out for the bullshit it is.
Property acquisition as a topic was almost a national obsession. You couldn't even call it speculation as the buyers all presumed the price of property could only go up. That’s why we use the word obsession. Ordinary people were buying properties for their young children who had not even left school assuming they would not be able to afford property of their own when they left college- Klaus Regling on Ireland. Sound familiar?
The evidence of nearly 40 cycles in house prices for 17 OECD economies since 1970 shows that real house prices typically give up about 70 per cent of their rise in the subsequent fall, and that these falls occur slowly. Morgan Kelly:On the Likely Extent of Falls in Irish House Prices, 2007
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