Capital gains withholding, a new threshold
From 1 July 2017, where a foreign resident disposes of Australian real property with a market value of $750,000 or above, the purchaser will be required to withhold 12.5% of the purchase price and pay it to the ATO unless the seller provides a variation (this is referred to as ‘foreign resident capital gains withholding’).
However, Australian resident vendors who dispose of Australian real property with a market value of $750,000 or above will need to apply for a clearance certificate from the ATO to ensure amounts are not withheld from their sale proceeds.
Therefore, all transactions involving real property with a market value of $750,000 or above will need the vendor and purchaser to consider if a clearance certificate is required.
The following is from the ATO’s website:
- Australian resident vendors can avoid the 12.5% withholding by providing one of the following to the purchaser prior to settlement:
- for Australian real property,
The property market, you will probably know that we don’t often comment on residential property. Due to it being such a heterogeneous asset class (the opposite to homogenous) there are pockets performing differently everywhere. However, given that most of us will have some exposure, we have included some observations from SQM Research to update you on the broader market.
Source: SQM Research
Perth and Darwin prices are the only ones showing year on year falls. We recall only 2 years ago being offered apartments in booming Darwin to ‘sell’ to our clients. Our scepticism and avoidance of conflicts of interest kept us well away from that disaster.
Over the month of June, Sydney prices are showing a small decline, though year on year was strong. Melbourne too was a standout, with even bigger gains than Sydney. Hobart off a low base showed strong gains as well.
While we are not local market experts in each suburb,
On issuance of the Practical Guidance in June this year for related party borrowings, the ATO acknowledged that further information was needed.
Recently, the ATO released Tax Determination 2016/16 which dealt with the subject of when a limited recourse borrowing arrangement has not been entered into on arm’s length terms.
The core principal at the heart of the release of the information from the ATO is that all dealings between a related party of the SMSF and the SMSF must be on ‘commercial terms’, or ‘arm’s length’. The meaning of commercial terms or arm’s length in relation to obtaining a loan in an SMSF, is that the terms of the loan, ie the interest rate, amount borrowed and term of the loan, must reflect what can be obtained from a third party such as a banking institution.
An example taken directly from the ATO tax determination compares a non arm’s length LRBA and an Arm’s Length LRBA, provides the following example:
The SMSF purchased a commercial property;
One of the key concepts with having an SMSF, is that as trustee you must preserve the assets of the SMSF for your retirement. With that in mind, the ATO is exceptionally clear that as trustee you must not treat the assets or income of the SMSF as your own – it’s not, it belongs to your future self in the form of retirement income.
With that in mind, it’s important to remember that when the SMSF owns a commercial property and you in your capacity of operating a business, lease the property, it must be treated as though you were in fact leasing the premises from someone else. This is what is referred to as Arms Length transactions.
Arms length transactions are the type of transaction where two independent strangers are making an agreement, neither one wants to get the worse end of the deal. These type of transactions are generally determined by the current market situations. Take Rent for example, if you were in an area that had surplus office spaces which high levels of vacant offices,
Chloe interviews Mark Beveridge from Quill Group and gets his insight on the difficulties investors are facing and what opportunities they should be looking out for.
When you buy an investment property, it’s assumed that all costs associated with the property will be a tax deduction, unfortunately, this is not always true.
An expense is deductible when it is incurred and to the extent that it relates to producing assessable income. Some of these expenses may include:
- Advertising for tenants
- Utilities & Taxes
- Loan Interest
- Agents’ Commissions
All of the above are common rental property expenses incurred in relation to rental income received.
The following article on using an SMSF unit trust to buy property was written by Daniel Butler of DBA Lawyers and published in the Australian Financial Review on September 26; 2015. The original article can be found here: Beware when using a unit trust to buy property in your SMSF (AFR subscription may be required).
SMSF unit trusts are popular structures by which to hold property and other investments.
They are particularly popular for self-managed superannuation funds (‘SMSF’) that invest in real estate. Using such a structure, one or more SMSFs, as well as other investors, can join forces to acquire an investment property, potentially giving each investor access to a better property with more upside potential than they might otherwise have.
Working within the SMSF unit trust rules
However, an SMSF must be careful to ensure it complies with a raft of superannuation rules.
An SMSF is not permitted to invest more than 5 per cent in a related trust,
Superfund Partners is relocating our Broadbeach office from the 31st of August 2015 to 10 Short Street Southport.
Why the move?
Superfund Partners started with two desks back in 2010 and due to strong growth and the merger with My Super Advisor we moved to our current stand-alone Broadbeach office in 2013.
We now have an opportunity to combine resources with our parent company Quill (who will be located within the same building) while still maintaining our own brand and independence – the best of both worlds. By sharing overheads we can better combat the rising cost of doing business and continue to provide our services at an appropriate price point.
Superfund Partners has unashamedly embraced cloud technology since our inception. As we’ve grown so has our need for a robust internet infrastructure. By moving into the CBD of Southport, we have access to faster, higher capacity broadband which will ensure we can continue to perform work efficiently for our clients.
Australians love property and our high level of (expensive) property ownership is one of the reasons we are ranked as one of the wealthiest countries in the world. Not only do we desire our own block of paradise, we also love to invest in property with 1.9 million individuals declaring rental income (or more likely a rental loss) in their annual tax returns.
But do we every stop and ask why? Why do we love property so much, and why is a large chunk of the population obsessed with becoming property millionaires?
In this article I will delve into some of the psychology that drives bricks and mortar investment. My goal is not to change behaviour or even judge whether the desire to invest in property is right or wrong. I simply want to hold up a mirror so we can better understand our own decisions and biases.
Property is a physical asset
Property is a physical thing.
Utilising a unit trust structure to provide multiple investors with ‘shares’ in an underlying property is not new. Listed and unlisted unit trust structures have been around for many years and we’ve also recently seen a fractional property investment solution launched by DomaCom.
The real point of difference that BrickX provides investors is that they are effectively creating a market where the shares (or ‘bricks’) in the individual properties can be bought and sold openly with very little cost (2% purchase cost, $0 sale cost). The transparency and liquidity this can provide is something residential property investors can’t currently access.
But would SMSF investors be better off buying an entire property via a limited recourse borrowing arrangement, or should you buy a number of bricks across a number of properties?