Implications of Property Options (POPI)

I was reading this (old) article from API today Inside a property option deal - Australian Property Investor magazine

Sounds like an interesting idea - you sign a contract for an option (but not an obligation) to buy a property for a fixed price in exchange for regular payments until such time when the option is exercised (if at all).

Has anyone looked into these arrangements?

I'm curious as to whether the ongoing regular payments are deductible from taxable income in the way that mortgage interest would be for an investment property.

 

Sounds like some weird combination or vendor finance and property options.

Ugh - legal minefield - wouldn't personally touch.

 

I think it is tax minefield too - Granting an option is a CGT even and then another event when the sale takes place.

I don't think the ongoing payments would be deductible because these are capital in nature.

I think it can be a good strategy, but I would be extra careful about elder abuse allegations and the laws of equity.

 

API in my opinion can be like reading Dolly. Full of ads and simplified editorial like stories. Page after page of it with genuine gold mixed between it. I find it hard to work out who is a spruiker and who isnt.

This 2013 advertorial is for a SA business IMO. Google the solicitor and strategy mentioned - Nothing much said about POPI's since..So much for a good idea ? And using a SMSF for a related party deal would be death to the fund. Try convincing a arms length person the enter into this deal ? And careful with the claims of having a ruling - Thats JUST for tax purposes. Not a SMSF issue, not a Centrelink issue. This sort of assurance is often a sign of a scheme in tax and maybe somewhat misleading. So take care....The ATO says....

The Commissioner does not sanction or guarantee this product. Further, the Commissioner gives no assurance that the product is commercially viable, that charges are reasonable, appropriate or represent industry norms, or that projected returns will be achieved or are reasonably based.

Potential participants must form their own view about the commercial and financial viability of the product. The Commissioner recommends a financial (or other) adviser be consulted for such information.

This Product Ruling provides certainty for potential participants by confirming that the tax benefits set out in the Ruling part of this document are available , provided that the scheme is carried out in accordance with the information we have been given, and have described below in the Scheme part of this document. If the scheme is not carried out as described, participants lose the protection of this Product Ruling.

And...Para 3 of the ruling explains the ruling doesnt explain the tax or SIS issues for the parties incl consequences of the payments. It ignores the borrowing aspects... and taxes on payments and borrowing issues. Lots of exceptions.​

In that article the creditcard gifting problem is ignored. The long term option may be a life interest. And these Centrelink rules have changed. How does it all fit with an estate plan / will ? As Terry said - Elder abuse ?

 

I am starting to see property options in Perth with a weaker market. Some people are wanting to rent but indicating that the rent is actually payment for an option to purchase at a future date and for a fixed sum; with the rent being consideration for the purchase of the apartment if the tenant chooses to exercise.

This has only been for apartments. It is quite messy and only considered by owners who are desperate to get an apartment rented.

Seems to give you the worst of all worlds.

 

Especially when one party thinks the payment is for something else. I have seen two recent ATO reviews when Centrelink detected issues in a pension asset review.