Flipping too costly?

Discussion in 'Accounting & Tax' started by SirDingo, 15th Mar, 2016.

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  1. D.T.

    D.T. Specialist Property Manager Business Member

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    Yup, it could potentially be classed as income tax though if you were doing it 'professionally'.

    I don't think its worth the trouble to be honest, even without tax involved there's lots of other people with their hands out for a piece of the pie - state govt, agents, banks, conveyancers. Just hold them and rent them.
     
  2. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    Agreed it's income tax but not GST and not CGT.
     
  3. SirDingo

    SirDingo Well-Known Member

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    I visited the ATO website which states that if the flipping is done in a 'business-like manner' for profit, and the turnover exceeds $75,000 per year then it's required to register for GST.

    Are there any Accountants here that can confirm our reading of that statement, namely, that if you flip properties and turnover more than $75k, that you are required to register for GST and would have to pay GST on the full sale price of the property, or have we interpreted that incorrectly?

    Cheers,
    SD
     
  4. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    Good point @SirDingo - I'm not an accountant - so I may have it wrong in my head. If there is GST on the sale then it probably has the benefit of the margin scheme which means you basically end up paying GST just on the improvement value not the whole contract amount.
     
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  5. Xenia

    Xenia Well-Known Member

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    There is certainly GST applicable to any income above $75,000 and yes you would be required to register for GST. Whether it applies to the entire sale price is not clear to me. An accountant or @Terry_w may be able to comment further as he is very knowledgeable in these areas.

    GST would be paid on the "service" of flipping properties, I'm wondering if you can have a company / entity purchasing the properties and another company/trust/entity doing the business of flipping and that second one would be the one required to be registered for GST???

    Just thinking out loud - Accountants, solicitors on here, please take over :)
     
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  6. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    There is no GST on residential property, other than new property, even if the turn over is greater than $75k. The definition of 'new property' includes substantially renovated property.

    If flipping is done the property may be classified as trading stock - but I am not sure off the top of my head if GST could apply to residential properties in this situation.
     
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  7. Xenia

    Xenia Well-Known Member

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    Is it classified as property or business? It is an income derived from property.
    I pay GST on producing an income from a property based business.

    If I purchase properties, add value and sell for a profit, is this not classified as a business and subject to income tests like all other businesses? The product is property but where is the line drawn?

    Thanks Terry
     
  8. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    GST on residential property in a situation like this so I am not sure. @Paul@PFI would know more than me.
     
  9. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Existing residential property is not subject to GST but is input taxed. That means the owner cannot claim GST included in costs. ie reno expenses. And no GST applies to the sale either. However care must be taken that the renovation is not substantial in which case the premises may become new and subject to GST. Care must be taken that immediately prior to acquisition that the property is still residential.

    Some common problems :
    - Renovate / convert a warehouse, barn or other non-residential premises
    - Commercial residential property (ie a unit that is let to a full time manager such as Accor)
    - Commercial residential blended property (ie above a shop)

    IMO flipping rarely works. It heavily relies upon risk and a rising market due to very high transaction costs (duty and legals and agent commissions). There are some who specialise and advocate this process (often based on US TV) and they must possess a ruthless and rapid approach to correcting major defects quickly and cheaply. A lick of paint and lino / carpet wont normally add value to cover the costs.

    Then they must accept paying 30-40% tax.
     
    Last edited: 17th Mar, 2016
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  10. Sackie

    Sackie Well-Known Member

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    @Paul@PFI your in-depth knowledge on all things accounting is absolutely amazing!
     
  11. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Tax knowlege Leo!
     
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  12. Sackie

    Sackie Well-Known Member

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    I leave it all to my wife ...she's the CPA accountant lol. I remain clueless. We each have our own domains of strength and take charge of different areas.

    Besides, I hate tax/accounting stuff with a passion :D
     
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  13. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Come on - how could you hate tax! Isn't it a joy finding ways to save tax?
     
  14. Sackie

    Sackie Well-Known Member

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    It's a joy for me when the wife finds ways to save tax :cool:

    ...then I spend it.:D
     
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  15. Jess Peletier

    Jess Peletier Mortgage Broker & Finance Strategy, Aus Wide! Business Member

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    not true sorry DT - you're so 9 months ago ;)
     
  16. D.T.

    D.T. Specialist Property Manager Business Member

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    Working for us ;)
     
  17. Jess Peletier

    Jess Peletier Mortgage Broker & Finance Strategy, Aus Wide! Business Member

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    Biz going well then! Good news :)
     
  18. bob shovel

    bob shovel Well-Known Member

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    Can I jump in with my q's too ;)

    How do you go down the "holding" option and make it a "job"

    Say buy, Reno, refinance, use LOC as your spending money aka wage, then go again

    Eg
    Start with 150k equity or cash avail
    Buy property for 250k
    Reno work 30k
    Reval 310k (double your expenses)
    Refinance and use LOC, do you get 80% of the equity? 48k. 30k put aside for next Reno, 18k for living costs. So if 1500/week for living that's 12 weeks pay, while you do the next one.
    Hold property it should be or buy so it's cf+ after reno.
    Go again

    Now.... That sounds simple but where are the traps?? Abn? tax man? Who wants a cut and what structuring etc
     
  19. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    Where do you get deposit for next one @bob shovel , is that $150k still around? Hopefully it would be in an offset whatever wasn't used for stamps and reno.

    You get 80% of the total value, so 80% of 310k which = 62k. Note if you had gone into this with 90% LVR then you might not get out as much but if you went into the deal with 20% of the 250k (ie loan of 200k) and reno and reval at $310 then I think you can LOC/equity release out $62k.

    In theory you have put in $50k + stamps and fees maybe $5k + $30k ($85k) from your $150k then you can get back out $62k. Total outlay then 23k?

    I hope I got my sums right. Equity likes to mess with my head on a Friday night.
     
  20. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    No all CPAs do tax.