Federal Budget 2016: You and Your Super

SUPERANNUATION, yes, it's still tax free. However, it comes with changes in that if you have more than $1.6m in superannuation at retirement, the amount over those earnings (not the withdrawals) will not be tax free from July 2017.

Not all bad news, as the bits above $1.6m still receive low concessional tax rates (10 or 15%). And, in most cases, it is far better than being taxed outside of superannuation.

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Capital Gains Tax: Subdividing & Amalgamating Land

THE FOLLOWING is a little-known (but should be widely-known) ATO explanation on how to calculate CGT on a property that was formerly your home that you subdivide much later. And how the principal place of residence can be lost.

Let's go through it in some detail ... for a Dwelling that was purchased on or after 20 September 1985, and then subdivided after that date.

Kym bought a house on a 0.2 hectare block of land in June 2014 for $700,000. The house was valued at $240,000 and the land at $460,000. Kym lived in the house as her main residence. She incurred $24,000 in stamp duty and legal fees purchasing the property.

Kym found the block was too big for her to maintain. In January 2015, she subdivided the land into two blocks of equal size. She incurred $20,000 in survey, legal and subdivision application fees; and $2,000 to connect water and drainage to the rear block.

In March 2015, she sold the rear block for $260,000.

As Kym sold the rear block of land separately, the main residence exemption does not apply to that land. She contacted several local real estate agents who advised her that the value of the front block was $30,000 higher than the rear block.

Kym apportioned the $460,000 original cost base into $215,000 for the rear block (46.7%) and $245,000 for the front block (53.3%). Kym incurred $6,000 legal fees on the sale.

The cost base of the rear block is calculated as follows:

  • Cost of the land $215,000
  • 46.7% of the $24,000 stamp duty and legal fees on the purchase $11,208
  • 46.7% of the $20,000 cost of survey, legal and application fees $9,340
  • Cost of connecting water and drainage $2,000
  • Legal fees on sale $6,000

Total Cost Base = $243,548

The capital gain on the sale of the rear block would be $16,452.

She calculated this by subtracting the cost base ($243,548) from the sale price ($260,000). As Kym had owned the land for less than 12 months, she uses the 'other' method to calculate her capital gain.

Kym will get the full exemption for her house and the front block, because they were used as her main residence for the full period she owned them.

Not a bad result. But imagine if she had bought it 10 years earlier, used it as her principal place of residence the whole time and where the value was about half of the value it is now:

That is: $350,000 purchased with a value of $120,000 for the home and land at $230,000 ... which is now valued at the $700,000 10 years later.

For tax purposes, you do not use the market value -- you must use the original value.

The cost base of the rear block is calculated as follows:

  • Cost of the land (46.7%) $107,410
  • 46.7% of the $24,000 stamp duty etc on the purchase $11,208
  • 46.7% of the $20,000 cost of survey, legal and application fees $9,340
  • Cost of connecting water and drainage $2,000
  • Legal fees on sale $6,000

Total Cost Base = $135,958

The capital gain on the sale of the rear block would now be $124,042 ... with no allowance for the past use as the primary residence.

Bottom Line: As you can appreciate, this can be a real trap. And yet, it is one you can often avoid, with proper restructuring before any sub-divisions occur.

 

It’s Tax Time Again!

Tax-checklist

HOW WOULD YOU like a detailed checklist to make sure no deductions are left unclaimed? You will find it covers virtually everything you need as a Commercial property investor, including things like …

  • Income-related Deductions
  • Work-related Deductions
  • Other Sundry Deductions
  • Your Rental Properties
  • Offsets/Rebates

[Read more…]

The 3 Most-Asked Questions To Buy Property in a SMSF

Super-Qs

IN A RECENT INTERVIEW with Dallas Brooks (on his program “Dollars with Sense”) … Steve Enticott explored these of 3 questions in quite some depth — because they especially the relate to Commercial property. [Read more…]

Divorce and Your DIY Fund

Divorce+DIY

MANY MARRIAGES END in divorce and the many members of Australia’s self managed superannuation funds (SMSFs) are not immune to this heartache.

As there are more than 1 million SMSF members nationwide, it should come as no surprise that the assets of an SMSF are often the next big ticket item after the marital home in any family law settlement.

Good outcomes can be generated for both parties with a little communication and compromise.

Let’s work through a case study using a Commercial property held within an SMSF and tenanted by the associated business of one of the SMSF beneficiaries. [Read more…]

How to Borrow to Buy a Property Within Your Personal Super Fund


AS YOU PROBABLY realise, this is not quite as simple as it may seem. And yet, all you need to do is follow some clearly defined procedures.ff

Simply CLICK ABOVE to watch the short Video … for a quick summary of what’s involved. [Read more…]

Liquidate Don’t Litigate

Liquidate-2

IMAGINE A SITUATION where you, through no fault of your own, are faced with a major lawsuit because one of your contractor suppliers has let you down and has gone into bankruptcy. [Read more…]

Your Age and The Full Passage of Time

Improve_with_age

I’M IN MY 40s … and well behind where I want or need to be. My career has stalled and the marriage is shaky because we’re constantly arguing about money. This is probably because my partner never returned to serious paid work after we had the children.

We’re far from making any dents in the mortgage. In fact, it’s actually rising slightly each year, what with the kids’ secondary education to pay for on top of all the other demands on our single income. [Read more…]

Super SUPER — Lending to Your Personal Super Fund

Lend-to-Super

ARE YOU THINKING about borrowing to buy property or other assets via a Self-Managed Superannuation Fund (SMSF)?

If so, you may be wondering whether you need a bank to lend directly to your SMSF; or if there is a simpler and cheaper way to borrow? [Read more…]

7 Tips to make the Most of Your Commercial Property at Tax Time!

Taxtime

SEVERAL PEOPLE have asked how to pay less tax on on their investment properties. Therefore, we’ve put together a list of our best 7 tips to help you save money at tax time.

1. Loan Interest

While a property is rented, available for rent or in the process of being built for rent, loan interest is tax deductible?– even if it is still at planning stage.

This includes the interest you pay on money you use to purchase or improve the property. [Read more…]

Giving Back: How to Use Private Ancillary Funds

Philanthropy2

PERHAPS THIS is might appear to you as something out of “left field” … but more and more investors are using PAFs to manage their charitable donations. [Read more…]