Well done. It doesn't show in your posts, but I'll give you the benefit of the doubt.
No I don't have an MBA from UQ, but it's not a requirement for me. An understanding of balance sheets is more useful.
OK, do you think I should create a signature with my university qualifications? How about exec education courses like those run by INSEAD? Should they be included? Bit wanky don't you think. Probably better suited for Linkedin.
In Australia two or more companies that have common ownership can choose to form a tax consolidated group and profits from one certainly offset losses of another. Those companies can operate totally unrelated businesses. This is very common.
Just by way of example, a parent company owned by a family group could in turn own 2 other companies, a loss making restaurant and a profit making panel beaters. By consolidating the losses of the restaurant would offset some (or all) of the profits from the panel beaters and lower the panel beaters tax. Both have to agree to take on the debts of the other so they couldn't walk away from the restaurant without settling all owned rent, wages and tax liabilities as a group.
This is much the same way the NG works for individuals, effectively the individual is 'running' 2 businesses, the business of selling their labour (i.e. their job) and the business of renting a house. Losses on the rental will offset the wage income tax.
Well that's clearly not correct..
If the individual was running a business of selling their labour, then the costs of operating that business would all be tax deductible, or at the very least, depreciable ... in truth, most of the initial costs of education, driving to and from work, buying a vehicle to do that, etc, etc etc are all not tax deductible nor depreciable.
In reality, there is only 1 possible business being conducted, the IP...
If the individual was running a business of selling their labour, then the costs of operating that business would all be tax deductible, or at the very least, depreciable ... in truth, most of the initial costs of education, driving to and from work, buying a vehicle to do that, etc, etc etc are all not tax deductible nor depreciable.
In reality, there is only 1 possible business being conducted, the IP...
It would be very easy for a self employed person or the wealthy. I don't see any impediments at all.
Not so easy for a PAYG salary earner unless they had wealth. If they have money they could have a positively geared share portfolio also running under a company umbrella, or some similar investment.
It would make it difficult for the mum and dad investors, but not the more wealthy investors. Handing the market to the rich shouldn't be the goal of legislative change
Take risks - if you win you will become wealthy, if you lose you will become wise
If the individual was running a business of selling their labour, then the costs of operating that business would all be tax deductible, or at the very least, depreciable ... in truth, most of the initial costs of education, driving to and from work, buying a vehicle to do that, etc, etc etc are all not tax deductible nor depreciable.
In reality, there is only 1 possible business being conducted, the IP...
I was going to say that the only difference is that PAYG slaves have to pay tax on revenue not profit so for that portion of the individual's 'business' you are correct.
Other than that (which is important but has little to do with the actual statement made by Snow), ie, companies in a tax consolidated group (with potentially unrelated businesses) can you losses on one to offset profits on another. Individuals can use losses on IPs to offset earnings (revenue) for personal effort. If all living costs were tax deductible off personal earnings people would pay little tax and govt would have to find other ways to make money. Remember in the US ppor interest costs are deductible in this manner.
The ATO gives an example here of what they clearly DO see as an example of a rental property business:
"Partners carrying on a rental property business Most rental activities are a form of investment and do not amount to carrying on a business. However, where you are carrying on a rental property business in partnership with others, you must divide the net rental income or loss according to the partnership agreement. You must do this whether or not the legal interests in the rental properties are different to the partners’ entitlements to profits and losses under the partnership agreement. If you do not have a partnership agreement, you should divide your net rental income or loss between the partners equally. See example 4. Example 4: Is it a rental property business? The Hitchmans’ neighbours, the D’Souzas, own a number of rental properties, either as joint tenants or tenants in common. They own eight houses and three apartment blocks (each apartment block comprising six residential units) making a total of 26 properties. The D’Souzas actively manage all of the properties. They devote a significant amount of time, an average of 25 hours per week each, to these activities. They undertake all financial planning and decision making in relation to the properties. They interview all prospective tenants and conduct all of the rent collections. They carry out regular property inspections and attend to all of the everyday maintenance and repairs themselves or organise for them to be done on their behalf. Apart from income Mr D’Souza earns from shares, they have no other sources of income. The D’Souzas are carrying on a rental property business. This is demonstrated by: the significant size and scale of the rental property activities the number of hours the D’Souzas spend on the activities the D’Souzas’ extensive personal involvement in the activities, and the business-like manner in which the activities are planned, organised and carried on. Mr and Mrs D’Souza have a written partnership agreement in which they agreed to carry on a rental property business. They have agreed that Mrs D’Souza is entitled to a 75% share of the partnership profits or losses and Mr D’Souza is entitled to a 25% share of the partnership profits or losses. Because the D’Souzas are carrying on a rental property business, the net profit or loss it generates is divided between them according to their partnership agreement (in proportions of 75% and 25%), even if their legal interests in the rental properties are equal, that is, they each own 50%."
And what it does NOT see as an example of a rental property business:
"Example 3: Co-owners who are not carrying on a rental property business The Tobins own, as joint tenants, two units and a house from which they derive rental income. The Tobins occasionally inspect the properties and also interview prospective tenants. Mr Tobin performs most repairs and maintenance on the properties himself, although he generally relies on the tenants to let him know what is required. The Tobins do any cleaning or maintenance that is required when tenants move out. Arrangements have been made with the tenants for the weekly rent to be paid into an account at their local bank. Although the Tobins devote some of their time to rental income activities, their main sources of income are their respective full-time jobs. The Tobins are not partners carrying on a rental property business, they are only co-owners of several rental properties. Therefore, as joint tenants, they must each include half of the total income and expenses on their tax returns, that is, in line with their legal interest in the properties."
I work for my own company. I could buy property in my company's name. If they ran at a loss that would reduce the company profits and reduce my income drawn as wages or dividends.
I feel pretty comfortable I could work it to my advantage. Especially as they are positively geared and I would be paying tax at the company rate rather than a higher individual rate. Understand that I do need to draw that money eventually, but it can sit there and be drawn at a time when income was lower, such as in retirement, and it can be paid into my Super at a low rate of tax, because as my own employer I can do that.
If you change the rules you will change the way people approach the game, and you will probably attract a different type of player, but it won't stop investors claiming every dollar of their tax deductions.
Is your company limited liability or sole trader/partnership?
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Essentially owning investment property is a business, and it should be run as such.
If not for land tax, it would be. Although I have found a way around that.
Matthew
26 Oct 2016, 12:31 AM
Are you sure of that, or is that something you simply think to be true?
I was fairly sure that a corporation had a fiduciary duty to run as a going concern, but now I am not so sure.
Losses certainly can be carried forward, but I believe it is not possible to deliberately run a business at a loss for a tax deduction.
But I am keen to hear your thoughts on that.
Rufus
26 Oct 2016, 08:20 AM
The non-wealthy mum and dad investors will be less able to do that, so a different group of investors will enter the market. That group will be more wealthy investors who will be looking for higher rental returns. They will run their investments as a business.
Is that what you want?
My preference would be to rent from a corporation. I could probably pay by credit card for starters. There may be a premium over mum and dad landlords, but given how many of them are monumental idiots, the premium would be worth any dramas avoided.
Is your company limited liability or sole trader/partnership?
Pty Ltd. Partnerships and sole traders are not incorporated.
A company would employ the owner as a PAYG employee, but a partnership or sole trader doesn't have that separation.
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If not for land tax, it would be. Although I have found a way around that.
just find out what the threshold is in your state and keep the property value within that limit.
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I was fairly sure that a corporation had a fiduciary duty to run as a going concern, but now I am not so sure.
No - lots of companies run at a loss. There is a requirement to remain solvent which is probably what you meant, but that can be maintained by topping up with cash periodically.
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Losses certainly can be carried forward, but I believe it is not possible to deliberately run a business at a loss for a tax deduction.
Why not. there is no law against being not very good at running a business. There are laws against tax avoidance though, but writng off losses against profits for a related company isn't avoidance.
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My preference would be to rent from a corporation. I could probably pay by credit card for starters. There may be a premium over mum and dad landlords, but given how many of them are monumental idiots, the premium would be worth any dramas avoided.
You may have a fee to pay rent via credit card. I would have thought that was possible now.
No - lots of companies run at a loss. There is a requirement to remain solvent which is probably what you meant, but that can be maintained by topping up with cash periodically.
Why not. there is no law against being not very good at running a business. There are laws against tax avoidance though, but writng off losses against profits for a related company isn't avoidance.
Hmmm ... a lot of people who invested in trees in the 90s would probably disagree with you. But, whatever.
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You may have a fee to pay rent via credit card. I would have thought that was possible now.
Not one managing REA with a merchant account in more than 20 years. Banks aren't stupid, they know that business is run by crooks.
Speak when you are angry and you will make the best speech you will ever regret. Ambrose Bierce
Hmmm ... a lot of people who invested in trees in the 90s would probably disagree with you. But, whatever.
There is a difference between running your own company at a loss with no financial discomfort to any other party, and losing the money of thousands of investors.
Take risks - if you win you will become wealthy, if you lose you will become wise
There is a difference between running your own company at a loss with no financial discomfort to any other party, and losing the money of thousands of investors.
Forest schemes were designed as tax minimisation schemes. They were companies that perpetually ran at a loss. Kind of an inverse ponzi scheme. The ATO took a dim view.
At any rate, it's not 'your' company, it belongs to the shareholders. While the shareholders might consist of only you, from a legal standpoint, it doesn't matter.
Speak when you are angry and you will make the best speech you will ever regret. Ambrose Bierce
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