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More than one in five first time buyers are buying an investment property
Topic Started: 21 Aug 2014, 02:52 PM (2,643 Views)
Veritas
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skamy
22 Aug 2014, 12:23 PM
Young people in a city like Sydney cannot afford to buy in the location they want straight away so rather than buying a home further out they buy an IP, they gain rent and tax relief via negative gearing to help them with the first few years of leasing. They can then use equity in the IP plus income, if it is positively geared, to get the PPOR. Even if they sell they will have capital gains that they did not have before purchasing whether or not it gets taxed.

If the eejits marching in Melbourne get their way this will be one less way available to young people on lower incomes to get on the property ladder.
:wak:
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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zaph
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b_b
22 Aug 2014, 12:00 PM


Happy to stand corrected if anyone here is a tax specialist.
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I understand that only applies if you are "unable" to live in the property for GCT relief period. i.e.: work inter-sate or overseas or hospitalised etc.

&
"PS; I always wondered how this exemption came about, and why 6 years? I reckon it's no co-incidence that 6 years happens to be two Commonwealth parliamentary terms :-)"


That was the original spirit of the rule and why it was created.

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I do not believe you can live across the road from your investment property, and claim 6 years of full GCT deduction just because you lives there for six months. Th best you can hope for is 1/12th of any gain quarantined for exemption.


Yes you can. There is no defined period that you need to live there either. It needs to be established as your PPOR - that would mean proving that you treated it as your main residence if you were audited. eg had all your bills sent there, changed your drivers licence address, electoral address etc.

More info here


To add a further gaming of the system...

When the property is sold is when you get to decide if it is your 'PPOR' and exempt.

A simple example...
You buy property A establish it as your PPOR then buy and move to property B and also establishing it as your "PPOR". If you sell both at the same within the time limits you get to decide which one is exempt from CGT - allowing you to exempt the property with the greatest CG.

There is a poster here, Trojan(?) that is employing this strategy.

An even further gaming example...
Assume above example and both properties are equal value with equal capital appreciation. You get all the Ng benefits on A. At sales time you elect A as your exempt residence. B is then subject to CGT, but the cost base is adjusted for all the costs of ownership over that period (interest, rates, maintenance etc) reducing any CGT payable.
Edited by zaph, 22 Aug 2014, 12:59 PM.
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skamy
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Veritas
22 Aug 2014, 12:25 PM
:wak:
You still don't get it do you? most people ( 74%) who negatively gear earn less than $80K. Removing it is bad for working class people not rich people who don't give a shit about whether they get tax back this year or the next.

You are being fed this line that removing NG will increase home ownership rates as less investors will buy, leaving more homes to OO, this is a fallacy. Why on earth do you think the MSM are so keen on this issue? (seriously please read the ragged trousered philanthropists)

Home ownership rates in cities like Sydney will drop that is always what happens at a certain stage of city growth, the mechanisms by which this happens are much stronger than anything removing a tax hurdle that benefits lowers incomes could do.

All that will happen is that you will have less Mum and dad investors with one property and less young people able to get a foothold in the market with one property.

If you look at what is happening in the US, big businesses and corporations are buying up residential homes, that is what will happen here and they will get an easier ride if the negative gearers are outta the market.
You are assuming that if an negatively geared investor cannot buy the OO will still be able to outbid the property investor who does not need to NG. Do you seriously believe that removing NG will increase home ownership rates from their already high levels. I don't I think there will always be a need for a certain number of rentals all that will change is that poorer people can no longer afford to buy these rentals and that Veritas is a BAD thing for people like you and me who care about keeping Australia egalitarian.
Definition of a doom and gloomer from 1993
The last camp is made up of the doom-and-gloomers. Their slogan is "it's the end of the world as we know it". Right now they are convinced that debt is the evil responsible for all our economic woes and must be eliminated at all cost. Many doom-and-gloomers believe that unprecedented debt levels mean that we are on the precipice of a worse crisis than the Great Depression. The doom-and-gloomers hang on the latest series of negative economic data.
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b_b
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propertymogul
22 Aug 2014, 12:18 PM
It would be up to the ATO to show that they didn't comply with the legislation. Since there are no restrictions in the legislation as to where and why you move out of the PPOR, it would be difficult for them to mount a case against you.
It is rarely up to the ATO to show anything. If you have ever been audited, the onus generally lies with the taxpayer.

If you bought a property and lived in it for six months, then rented it out, claimed NG, and 100% CGT relief, all the while not being able to show any reason why you could not live there yourself - you would be fckd in any court IMO. The ATO would not have to go much further than show the link you posted.

Does not stop people from trying i guess.
Edited by b_b, 22 Aug 2014, 02:17 PM.
(S – I) + (T - G) + (M - X) = 0
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John Frum
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skamy
22 Aug 2014, 02:05 PM
You still don't get it do you? most people ( 74%) who negatively gear earn less than $80K. Removing it is bad for working class people not rich people who don't give a shit about whether they get tax back this year or the next.
Absolute bollocks. Negative gearing favors people like me paying the top rate of tax.

If people earning less than 80k are levered up with property debt because they've been fed the nonsense that it only ever goes up then they're fools, it's not society's responsibility to keep the housing ponzi scheme afloat to save their butts.

Quote:
 

You are being fed this line that removing NG will increase home ownership rates as less investors will buy, leaving more homes to OO, this is a fallacy. Why on earth do you think the MSM are so keen on this issue?


The issue is the systemic crisis in the financial sector likely to arise from negative gearing encouraging mass speculation in housing due to aforementioned stupidity.

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Home ownership rates in cities like Sydney will drop that is always what happens at a certain stage of city growth, the mechanisms by which this happens are much stronger than anything removing a tax hurdle that benefits lowers incomes could do.


Unsubstantiated garbage.

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All that will happen is that you will have less Mum and dad investors with one property.


So you mean they'll need to direct their capital to more useful and productive activities of benefit to all society?
Boo hoo, my heart bleeds for them.

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If you look at what is happening in the US, big businesses and corporations are buying up residential homes, that is what will happen here and they will get an easier ride if the negative gearers are outta the market.


What, and you think they won't adopt the same strategy? What the hell does that even mean. Take your pills and have a lie down woman!


Quote:
 
You are assuming that if an negatively geared investor cannot buy the OO will still be able to outbid the property investor who does not need to NG. Do you seriously believe that removing NG will increase home ownership rates from their already high levels. I don't I think there will always be a need for a certain number of rentals all that will change is that poorer people can no longer afford to buy these rentals and that Veritas is a BAD thing for people like you and me who care about keeping Australia egalitarian.


No, if large companies do it they will benefit from economies of scale and be able to pass those savings on to the renter, illegal collusion/rent-seeking behavior notwithstanding.
"It were not best that we should all think alike; it is difference of opinion that makes horse races." - Mark Twain on why he avoids discussing house prices over at MacroBusiness.
"Buy land, they're not making any more of it." - Georgist Land Tax proponent Mark Twain laughing in his grave at humourless idiots like skamy that continually use this quip to justify housing bubbles.
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zaph
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b_b
22 Aug 2014, 02:13 PM


Does not stop people from trying i guess.
Quote:
 
It is rarely up to the ATO to show anything. If you have ever been audited, the onus generally lies with the taxpayer.


Generally correct.

Quote:
 
If you bought a property and lived in it for six months, then rented it out, claimed NG, and 100% CGT relief, all the while not being able to show any reason why you could not live there yourself - you would be fckd in any court IMO. The ATO would not have to go much further than show the link you posted.


Your views stated in this thread on the 'six year rule' are totally and completely false! There is no 'reason' required that you claim.
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propertymogul
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zaph
22 Aug 2014, 03:37 PM



Generally correct.




Your views stated in this thread on the 'six year rule' are totally and completely false! There is no 'reason' required that you claim.
Agreed Zaph. There is no 'reason' required, therefore no basis for the ATO to deny you the exemption.

While generally you are correct bb that the onus of proof is on the taxpayer, what would the taxpayer have to prove in this instance, where there are no requirements for the exemption?
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zaph
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propertymogul
22 Aug 2014, 03:42 PM
Agreed Zaph. There is no 'reason' required, therefore no basis for the ATO to deny you the exemption.

While generally you are correct bb that the onus of proof is on the taxpayer, what would the taxpayer have to prove in this instance, where there are no requirements for the exemption?
Related and a bit of an aside. An ATO audit does usually start with a full rubber glove.

A few questions in a phone call with incorrect answers leads to the ATO gloving up.
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propertymogul
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b_b
22 Aug 2014, 02:13 PM
It is rarely up to the ATO to show anything. If you have ever been audited, the onus generally lies with the taxpayer.

If you bought a property and lived in it for six months, then rented it out, claimed NG, and 100% CGT relief, all the while not being able to show any reason why you could not live there yourself - you would be fckd in any court IMO. The ATO would not have to go much further than show the link you posted.

Does not stop people from trying i guess.
Zaph already pretty much summed it up. If it went to court under the current legislation you would generally be fine. There is no required reason for not living there, you simply had to have intention to live there when you purchased it. I know what you are saying, it seems like a generous exception that can be abused (and sometimes is), but the ATO don't have any grounds to deny the exception under the current legislation, i.e. there are no hurdles to be met.


zaph
22 Aug 2014, 03:50 PM
Related and a bit of an aside. An ATO audit does usually start with a full rubber glove.

A few questions in a phone call with incorrect answers leads to the ATO gloving up.
Yes as an accountant have been through two ATO audits (not personal ones). The companys returns were correct and legitimate so we passed with flying colours, although they did take their sweet time paying us the refund owed.

I have seen cases though where they are right royal ........
Edited by propertymogul, 22 Aug 2014, 03:58 PM.
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newjez
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propertymogul
22 Aug 2014, 12:18 PM
Basically what I've seen in practice is that people will do exactly that. They will buy, move in for a short time, then rent it out and either move back in with the pairs or rent somewhere else. As long as the "intention" is to live in the PPOR when you purchase it, you are complying with the legislation. When they sell they simply don't pay any CGT on the sale, claiming PPOR. It really is that easy, until they change the legislation. Sydneyite may be right on the reason for the 6 years, it may be in there for the benefit of politicians.

It would be up to the ATO to show that they didn't comply with the legislation. Since there are no restrictions in the legislation as to where and why you move out of the PPOR, it would be difficult for them to mount a case against you.
Is there any caselaw you are aware of?
Whenever you have an argument with someone, there comes a moment where you must ask yourself, whatever your political persuasion, 'am I the Nazi?'
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