Max lend on a 45k Aussie Salary
Oct 20th 2003, 7:36 pm
#46
Migration Agent
Joined: May 2002
Location: Offices in Melbourne, Brisbane, Perth, Geelong (Australia), and Southampton (UK)
Posts: 6,459
Because of the capital gains tax discount of 50% on chargeable assets owned for more than 12 months and the availability of an income tax deduction on the net loss arising on income generating investments there is a quite significant distortion in the real estate sector.
The danger in providing a general tax deduction for the net rental loss is that people make decisions to invest in real estate based on the tax breaks rather than the commercial realities, which on a rational basis would indicate that too many people are heavily geared up.
If interest rates edge up by 2 to 3% there are going to be a significant number of people who may have a useful tax deduction, but who still have to pay the mortgage and who won't have the available cash each month.
I recall an article a few months ago which said that if the Government restricted the deduction for losses from income generating assets such that they could only be offset against profits from the same source of income (which is the case in the UK) the top rate of tax could come down from 47% to nearer 42%. Personally, I think that would be a healthier scenario for the Australian economy, but politically I can't see it happening because so many would be affected.
Best regards.
The danger in providing a general tax deduction for the net rental loss is that people make decisions to invest in real estate based on the tax breaks rather than the commercial realities, which on a rational basis would indicate that too many people are heavily geared up.
If interest rates edge up by 2 to 3% there are going to be a significant number of people who may have a useful tax deduction, but who still have to pay the mortgage and who won't have the available cash each month.
I recall an article a few months ago which said that if the Government restricted the deduction for losses from income generating assets such that they could only be offset against profits from the same source of income (which is the case in the UK) the top rate of tax could come down from 47% to nearer 42%. Personally, I think that would be a healthier scenario for the Australian economy, but politically I can't see it happening because so many would be affected.
Best regards.
Oct 20th 2003, 8:01 pm
#47
Joined: Aug 2003
Posts: 11,149
Originally posted by Alan Collett
Because of the capital gains tax discount of 50% on chargeable assets owned for more than 12 months and the availability of an income tax deduction on the net loss arising on income generating investments there is a quite significant distortion in the real estate sector.
The danger in providing a general tax deduction for the net rental loss is that people make decisions to invest in real estate based on the tax breaks rather than the commercial realities, which on a rational basis would indicate that too many people are heavily geared up.
If interest rates edge up by 2 to 3% there are going to be a significant number of people who may have a useful tax deduction, but who still have to pay the mortgage and who won't have the available cash each month.
I recall an article a few months ago which said that if the Government restricted the deduction for losses from income generating assets such that they could only be offset against profits from the same source of income (which is the case in the UK) the top rate of tax could come down from 47% to nearer 42%. Personally, I think that would be a healthier scenario for the Australian economy, but politically I can't see it happening because so many would be affected.
Best regards.
Because of the capital gains tax discount of 50% on chargeable assets owned for more than 12 months and the availability of an income tax deduction on the net loss arising on income generating investments there is a quite significant distortion in the real estate sector.
The danger in providing a general tax deduction for the net rental loss is that people make decisions to invest in real estate based on the tax breaks rather than the commercial realities, which on a rational basis would indicate that too many people are heavily geared up.
If interest rates edge up by 2 to 3% there are going to be a significant number of people who may have a useful tax deduction, but who still have to pay the mortgage and who won't have the available cash each month.
I recall an article a few months ago which said that if the Government restricted the deduction for losses from income generating assets such that they could only be offset against profits from the same source of income (which is the case in the UK) the top rate of tax could come down from 47% to nearer 42%. Personally, I think that would be a healthier scenario for the Australian economy, but politically I can't see it happening because so many would be affected.
Best regards.
Oct 20th 2003, 8:21 pm
#48
Senior member
Joined: Sep 2002
Location: Paris
Posts: 835
Originally posted by Alan Collett
Because of the capital gains tax discount of 50% on chargeable assets owned for more than 12 months and the availability of an income tax deduction on the net loss arising on income generating investments there is a quite significant distortion in the real estate sector.
The danger in providing a general tax deduction for the net rental loss is that people make decisions to invest in real estate based on the tax breaks rather than the commercial realities, which on a rational basis would indicate that too many people are heavily geared up.
If interest rates edge up by 2 to 3% there are going to be a significant number of people who may have a useful tax deduction, but who still have to pay the mortgage and who won't have the available cash each month.
I recall an article a few months ago which said that if the Government restricted the deduction for losses from income generating assets such that they could only be offset against profits from the same source of income (which is the case in the UK) the top rate of tax could come down from 47% to nearer 42%. Personally, I think that would be a healthier scenario for the Australian economy, but politically I can't see it happening because so many would be affected.
Best regards.
Because of the capital gains tax discount of 50% on chargeable assets owned for more than 12 months and the availability of an income tax deduction on the net loss arising on income generating investments there is a quite significant distortion in the real estate sector.
The danger in providing a general tax deduction for the net rental loss is that people make decisions to invest in real estate based on the tax breaks rather than the commercial realities, which on a rational basis would indicate that too many people are heavily geared up.
If interest rates edge up by 2 to 3% there are going to be a significant number of people who may have a useful tax deduction, but who still have to pay the mortgage and who won't have the available cash each month.
I recall an article a few months ago which said that if the Government restricted the deduction for losses from income generating assets such that they could only be offset against profits from the same source of income (which is the case in the UK) the top rate of tax could come down from 47% to nearer 42%. Personally, I think that would be a healthier scenario for the Australian economy, but politically I can't see it happening because so many would be affected.
Best regards.
I recall arguing with my secretary in Sydney when her husband was looking into investment properties. He specifically wanted to buy one which generated rental income below the loan interest, so that the excess interest could be offset against the top slice of his employment income. Somehow they had misunderstood the benefit - its designed to reduce the impact of losses by providing some compensation for a poor rental yield. They thought they would be benefitting with no downside, but my argument was that its better to buy a property that generates a better yield and not make any losses at all. Of course, being a daft pommie I had no idea what I was talking about.
I prefer the UK system, which should force people to seriously question whether they are paying the right price for the property if the rent does not cover the mortgage interest. The rent on our investment property covers both the interest and the capital repayment on the mortgage.
Oct 20th 2003, 10:09 pm
#49
Migration Agent
Joined: May 2002
Location: Offices in Melbourne, Brisbane, Perth, Geelong (Australia), and Southampton (UK)
Posts: 6,459
Yes, I have often said that I'd rather make a profit and pay tax than pay no tax because I have sustained a loss!
The added issue with investments by so many in Australia is that the capital gains tax system rewards investors with a 50% discount on a capital gain if they hold an asset for more than 12 months before selling it. This further allows those marketing property investment schemes to the general public to exploit the relative lack of knowledge that you have highlighted Herman.
There has already been some cracking down on property investment promoters by the regulators in Australia, and I see more of this to come in an effort to reduce the head of steam that is building up:
http://www.abc.net.au/pm/content/2003/s958847.htm
Another factor driving real estate investment by so many is the significant fall in investment returns in recent years in the context of pension/annuity income. This has been fuelled by the drop in interest rates (and hence annuity rates) and the mistrust of financial advisors and investment houses. The result is that a lot of investment capital is being diverted from traditional investments such as pension/super into real estate.
Best regards.
The added issue with investments by so many in Australia is that the capital gains tax system rewards investors with a 50% discount on a capital gain if they hold an asset for more than 12 months before selling it. This further allows those marketing property investment schemes to the general public to exploit the relative lack of knowledge that you have highlighted Herman.
There has already been some cracking down on property investment promoters by the regulators in Australia, and I see more of this to come in an effort to reduce the head of steam that is building up:
http://www.abc.net.au/pm/content/2003/s958847.htm
Another factor driving real estate investment by so many is the significant fall in investment returns in recent years in the context of pension/annuity income. This has been fuelled by the drop in interest rates (and hence annuity rates) and the mistrust of financial advisors and investment houses. The result is that a lot of investment capital is being diverted from traditional investments such as pension/super into real estate.
Best regards.
Originally posted by Herman
That's very interesting Alan, I did'nt realise the scale.
I recall arguing with my secretary in Sydney when her husband was looking into investment properties. He specifically wanted to buy one which generated rental income below the loan interest, so that the excess interest could be offset against the top slice of his employment income. Somehow they had misunderstood the benefit - its designed to reduce the impact of losses by providing some compensation for a poor rental yield. They thought they would be benefitting with no downside, but my argument was that its better to buy a property that generates a better yield and not make any losses at all. Of course, being a daft pommie I had no idea what I was talking about.
I prefer the UK system, which should force people to seriously question whether they are paying the right price for the property if the rent does not cover the mortgage interest. The rent on our investment property covers both the interest and the capital repayment on the mortgage.
That's very interesting Alan, I did'nt realise the scale.
I recall arguing with my secretary in Sydney when her husband was looking into investment properties. He specifically wanted to buy one which generated rental income below the loan interest, so that the excess interest could be offset against the top slice of his employment income. Somehow they had misunderstood the benefit - its designed to reduce the impact of losses by providing some compensation for a poor rental yield. They thought they would be benefitting with no downside, but my argument was that its better to buy a property that generates a better yield and not make any losses at all. Of course, being a daft pommie I had no idea what I was talking about.
I prefer the UK system, which should force people to seriously question whether they are paying the right price for the property if the rent does not cover the mortgage interest. The rent on our investment property covers both the interest and the capital repayment on the mortgage.
Oct 21st 2003, 11:17 am
#50
Just Joined
Joined: Oct 2003
Location: Level 7, 87 Wickham Terrace Brisbane
Posts: 3
To purchase an investment property in Australia as a non resident you need approval from Foreign Investment Review Board.
There is no limit to the number of properties you can buy (obviously subject to finance restrictions) but there are some restrictions on what you can buy.
Basically they are only going to approve purchase if the dwelling is new or under construction. They will only let you purchase a 2nd hand dwelling if it is for your own "principle place of residence". If you subsequently move out or leave the country, FIRB will force you to sell it.
Likewise with land, you must construct within in 12 months. They also have a requirement that you advise them of total construction costs following completion.
There are also some industry restrictions of businesses you can buy but these are mainly for big ticket items.
The application process is relatively simple albeit there is a process to follow but there can be time delays.
You must sign contracts Subject to FIRB approval , in fact it is a good idea to get approval in principle before signing contract.
Hope this is of assistance.
There is no limit to the number of properties you can buy (obviously subject to finance restrictions) but there are some restrictions on what you can buy.
Basically they are only going to approve purchase if the dwelling is new or under construction. They will only let you purchase a 2nd hand dwelling if it is for your own "principle place of residence". If you subsequently move out or leave the country, FIRB will force you to sell it.
Likewise with land, you must construct within in 12 months. They also have a requirement that you advise them of total construction costs following completion.
There are also some industry restrictions of businesses you can buy but these are mainly for big ticket items.
The application process is relatively simple albeit there is a process to follow but there can be time delays.
You must sign contracts Subject to FIRB approval , in fact it is a good idea to get approval in principle before signing contract.
Hope this is of assistance.
