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Tax Query

Discussion in 'Accounting & Tax' started by psylence, 4th Oct, 2016.

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  1. psylence

    psylence Member

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    Hey all,

    I have a property I've owned for about 8 years which we have just moved out of and now has tennants. Interest from loan is currently around $500/month and then rent earned/month is $1750. We have around 45k on the offset account on it. Is there any benefit to me taking the money from the offset account and using it for something else therefore increasing the amount of interest that will be charged compared to earnings for tax? Or because the interest would be still far lower than amount earned it's no use doing this? A bit confused, thanks.
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yes you could make a $45k tax deductible gift to a charity. Ongoing you would also have higher inter3st on the loan which you could claim.

    If you didnt want to make a gift where do you intend to put the money? Ideally it would be in an offset account against the main resident loan.
     
  3. Scott No Mates

    Scott No Mates Well-Known Member

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    As per @Terry_w or you may want to pay some other non-deductible loans.
     
  4. psylence

    psylence Member

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    I was thinking about putting it into shares as we are renting where we are living at the moment.
     
  5. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    In the case it is just a matter of asking yourself will the shares return more than the interest you are saving by having the money if your offset account.
     
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  6. Scott No Mates

    Scott No Mates Well-Known Member

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    You can borrow for those too.
     
  7. MikeLivingTheDream

    MikeLivingTheDream BCOM MCOM MTAX CPA CTA Registered Tax Agent

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    seems like the question is do i need to be registered for GST and if registered for GST do i need to do a BAS return.

    A supply will be a taxable supply where the requirements of section 9-5 of the GST Act are satisfied.

    Section 9-5 of the GST Act states:
    You make a taxable supply if:

    (a) you make the supply for *consideration; and

    (b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and

    (c) the supply *is connected with Australia; and

    (d) you are *registered or *required to be registered.​

    However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed
    (* denotes a defined term under section 195-1 of the GST Act)

    Based on your brief post, you seem to satisfy the requirements under paragraphs 9-5(a) and 9-5(c) of the GST Act as the supplies that you make are for consideration and the new units are located in Australia respectively.

    Therefore, you need to consider:

    ● whether your sale of the new units is in the course or furtherance of an enterprise that you carry on (paragraph 9-5(b) of the GST Act), and

    ● whether you are required to be registered for GST (paragraph 9-5(d) of the GST Act).
    The definition of an enterprise in section 9-20 of the GST Act includes (amongst other things) an activity or series of activities, done:

    ● in the form of a business

    ● in the form of an adventure or concern in the nature of trade; or on a regular or continuous basis, in the form of a lease, license or other grant of an interest in property.

    You need to consider whether your proposed activities on the Land will constitute an enterprise of property development.

    Paragraph 9-20(1)(b) of the GST Act was recently considered by the Federal Court in Professional Admin Service Centres Pty Ltd v. Commissioner of Taxation [2013] FCA 1123 where Edmonds J stated at [39]:

    • …But para (b) of s 9-20(1) makes it clear that an "enterprise" can include an isolated commercial venture in the nature of trade, which implies that it be entered into for a commercial purpose, including the purpose of profit-making:

      Edwards (Inspector of Taxes) v Barnstow [1956] AC 14;

      Commissioner of Taxation v Myer Emporium Ltd (1987) 163 CLR 199;

      Thiel v Federal Commissioner of Taxation (1990) 171 CLR 338 at 344-345 per Mason CJ, Brennan and Gaudron JJ; at 351-351 per Dawson J; and at 360 per McHugh J.
    In this context, the Court focussed on the entity entering into a transaction for a commercial purpose, which includes the purpose of profit making. Similar comments were expressed by Dowsett J in the broader context of 'enterprise' in Russell v Commissioner of Taxation [2011] FCAFC 10 at [21] to [22].

    21. The word "enterprise" is of some significance in the operation of art 7. The meaning of that word, in the context of an agreement with Switzerproperty, was considered by the High Court in Thiel v Federal Commissioner of Taxation 90 ATC 4717; (1990) 171 CLR 338, especially at 344-5 per Mason CJ, Brennan and Gaudron JJ, at 350-352 per Dawson J and at 357-359 per McHugh J. It seems that the word has a broad meaning. As Mason CJ, Brennan and Gaudron JJ said at 344

    "... an activity, as well as a framework within which such activities are engaged in, may constitute an 'enterprise' for the purposes of the agreement.

    22. In other words, a business, in the usual sense, will be an enterprise. However an activity, which might not generally be treated as a business because of lack of continuity, may also be an enterprise; certainly if the activity amounts to an adventure in the nature of trade:

    Edwards v Bairstow
    (1956) AC 1;

    Minister of National Revenue v Tara Exploration and Development Co Ltd
    (1972) 28 DLR (3d) 135; Thiel at 352 per Dawson J; at 360 per McHugh
    The meaning of enterprise is considered in Miscellaneous Taxation Ruling MT 2006/1: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number, and Goods and Services Tax Determination GSTD 2006/6: does MT2006/1 have equal application to the meaning of 'entity' and 'enterprise' for the purposes of the GST Act.

    Paragraph 10 of GSTD 2006/6 provides that 'an activity or series of activities' means any act or series of acts that an entity does. The acts can range from a single act or undertaking, to groups of related activities, to the entire operations of the entity. Therefore, an enterprise can incorporate a single or one-off transaction such as the subdivision, building and sale of real property.

    The term business ordinarily would encompass a trade that is engaged in, on a regular or continuous basis, while an adventure or concern in the nature of trade may be an isolated or one-off transaction and includes a commercial activity that does not amount to a business but which has the characteristics of a business deal.

    It seems that you have never been involved in property development before and that your activities represent a one-off transaction on the Land. In the absence of other facts, it would probably be considered that your activities are not carried out in the form of a business if these activities are part of a one-off transaction on the Land and not the beginning of an ongoing property development business.

    As your activities of development and sale of new units is an isolated transaction, it is necessary to determine whether the development and sale of the new units will have a commercial flavour that goes beyond the mere realisation of an investment asset or private asset.

    In the form of an adventure or concern in the nature of trade

    Paragraph 13 of GSTD 2006/6 explains that an adventure or concern in the nature of trade includes a commercial activity that does not amount to a business but which has the characteristics of a business deal. Isolated transactions with a commercial flavour are included in this category. Such transactions are of a revenue nature.

    Paragraphs 262 to 302 of MT 2006/1 specifically consider isolated transactions and sales of real property. Paragraph 263 of MT 2006/1 states that the issue to be decided is whether the activities are an enterprise, in that they are of a revenue nature, as opposed to the mere realisation of a capital asset.

    Certain factors listed at paragraph 265 of MT 2006/1 can be used as indicators of whether or not there is an activity done in the form of a business or in the form of an adventure or concern in the nature of trade. These factors include whether:

    ● there is a change of purpose for which the land is held,
    ● additional land is acquired to be added to the original parcel of land,
    ● the parcel of land is brought into account as a business asset,
    ● there is a coherent plan for the subdivision of the land,
    ● there is a business organisation (for example, a manager, office and letterhead),
    ● borrowed funds financed the acquisition or subdivision,
    ● interest on money borrowed to defray subdivisional costs was claimed as a business expense,
    ● there is a level of development of the land beyond that necessary for council approval for the subdivision, and
    ● buildings have been erected on the land.

    In determining whether activities relating to isolated transactions are an enterprise or the mere realisation of a capital asset, it is necessary to examine the facts and circumstances of each case. No single factor will be determinative. Rather it will be a combination of factors that will lead to a conclusion as to the character of the activities.

    Paragraphs 258 to 260 of MT 2006/1 provide that certain type of assets, such as rental properties, business plant and machinery, the family home, family cars and other assets are considered as investment assets. These assets are purchased with the intention of being held for a reasonable period of time, as income-producing assets or for the pleasure or enjoyment of the person. The mere disposal of these investment and private assets does not amount to trade. Assets can change their character from investment to trade, however these assets cannot be held at the same time for both purposes.

    Something for your accountant to consider.
     
  8. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Slightly off topic ?
     
  9. MikeLivingTheDream

    MikeLivingTheDream BCOM MCOM MTAX CPA CTA Registered Tax Agent

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    sorry just realised in the wrong thread. thanks paul.

    sim can you delete the post in here