Structuring Your Investments: General Concepts

 

Noel May(Accounting expert Noel May of Noel May & Associates  discusses some important general accounting concepts related to structuring and your investments.)

 

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Let’s run through a few general concepts; and before the experts scream and yell, there are exceptions to the rules all over the place, that’s what keeps us accountants in a job.

Trading Revenue

  • Profits made from the business of property rental are taxable in the year the profit is made. 
  • Losses, (where operating expenses including interest and depreciation exceed the rental income) are deductible against the other income of the entity that made the loss and cannot really be transferred to other entities or people.
  • If there is insufficient other income, the loss can be carried forward to future years, where it can be offset against future profits.

Capital Gains

  • When an asset is disposed of, the profit on the disposal (being the difference between what you received from the sale and what the property cost you) is taxable in the hands of the entity that owned the property.
  • The profit is taxable in the year in which the contract of sale became unconditional, not the year in which the property was settled.
  • Broadly speaking, if an entity other than a company or a superannuation fund, holds property for more than 1 year, the amount of the capital gain that is taxed can be reduced by 50%. Companies don’t get the 50% discount and for super funds the discount is 33.3%.  
  • Capital gains made on the sale of your personal Main Residence (your home) are tax free and may even remain tax free under certain circumstances even if you have rented the place out over a few years.
  • Losses made on the disposal of capital assets can only be offset against capital gains; so you cannot sell an investment property, make a capital loss and offset it against your wages and salaries.
  • However, trading losses can be offset against the capital gains.

Remember, always, always, always talk to your accountant before you sign that contract on the dotted line.

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