On Tuesday, 1 October 2019, it was announced by the Reserve Bank of Australia (RBA) that the official interest rate will drop by a…
The Australian property market has always held great appeal to both domestic and foreign investors. With a relatively stable economy and continued demand for housing, the Australian market provides ideal conditions for a greater return on your investment.
As can be seen in the ‘2018 Russell Investments/Australian Stock Exchange (ASX) Long Term Investing Report’s’ graph below; as of December 2017, Australian residential property gave an average gross (before tax) return rate of 8% over the last 10 years followed closely by the ‘Global Shares’ market at an average annual return on investment at 7.2%.
10-Year Average of Return On Investment by Asset Class:
When a child is born, it can be very tempting to set them up on the road to financial wisdom and stability, after all we only desire the best for our offspring. Before doing so, it is worthwhile noting that there is a wealth of complications when issuing shares to a minor, whether in listed or unlisted companies.
While there are no legal reasons why shares cannot be registered in the name of a minor, there are more than enough tax reasons to make you think twice.
There are two categories of ownership to consider for an owner of a share: The legal owner, who is the registered owner and, in this scenario, has their name recorded in the share registry, and the beneficial owner, who benefits from holding the shares. Children cannot legally own the property; however, they are entitled to the benefits and thus they can be deemed the beneficial owner.
Capital Claims, the tax depreciation specialists, have recently published this article Can I still claim tax depreciation on my investment property since the new legislation passed?, specifically targeted to investors to assist them with understanding the changes to the investment property property depreciation rules, the new legislation for which was passed in November 2017.
From 1 July 2018, purchasers of new residential premises and new subdivisions of residential land will be required to remit GST on the purchase price to the ATO directly on or prior to settlement.
This will replace the current GST on a quarterly or monthly basis in their Business Activity Statements, which can be months after the settlement date. This new arrangement is expected to assist in reducing the delays or failure in remitting the GST on sales for some property developers.
The Bill containing the legislation dealing with the withholding of GST by purchasers in property transactions was introduced on 7 February 2018. There is no change to the commencement date for the new regime, which remains 1 July 2018. The Bill contains a number of important changes from the Exposure Draft.
Cash flow impacts
The new legislation, will result in the supplier receiving the consideration for the property net of an amount representing the GST. Therefore, a supplier, such as a property developer, will not receive the full consideration as they do currently, because an amount representing an estimate of the GST will have been withheld by the purchaser to be paid directly to the ATO.
Under the current rules, the property developer would have had the use of this additional cash at least until some or all of it were paid to the ATO on the next BAS. This new legislation could have significant practical implications for the cash flow of property developers, as well as a knock-on effect for them in meeting bank covenants in respect of their cash reserves.