Volatility in the Sharemarket, Bank Collapses, and the Effect on Property Prices and Inflation4/5/2023 ![]() The share market, bank collapses, and property prices are all interconnected, and changes in one area can have a ripple effect on the others. In particular, volatility in the share market and bank collapses can significantly impact property prices and inflation. Volatility in the Sharemarket The share market is often subject to volatility, which refers to the degree of variation of a financial instrument's price over time. The share market can be volatile due to a variety of factors, such as changes in interest rates, political instability, or economic uncertainty. Volatility can cause share prices to fluctuate rapidly, and this can have a significant impact on investor confidence. When investors become nervous, they may sell their shares, which can cause further declines in the market. This can trigger a domino effect, leading to a market crash. A market crash can have significant economic consequences, such as a decrease in consumer spending, a decline in business investment, and an increase in unemployment. A market crash can also lead to bank collapses, as banks may have invested heavily in the stock market, and a significant downturn can wipe out their assets. Bank Collapses Bank collapses can have far-reaching consequences, affecting not only the banking industry but also the broader economy. When a bank collapses, it can cause a loss of confidence in the banking system, leading to a run on other banks. The collapse of a bank can also cause a credit crunch, making it harder for businesses and individuals to access credit. This can have a knock-on effect on consumer spending, business investment, and economic growth. Bank collapses can also lead to a decline in property prices, as banks may have lent heavily to the property market. When a bank collapses, it may need to sell off its assets to pay its creditors, including its property assets. This can lead to an oversupply of properties in the market, causing prices to drop. Effect on Property Prices and Inflation Volatility in the share market and bank collapses can have a significant impact on property prices and inflation. When the share market is volatile, investors may turn to property as a more stable investment. This can increase demand for properties, causing prices to rise. However, if a market crash or bank collapse occurs, property prices may decline due to oversupply and reduced demand. This can have a knock-on effect on inflation, as property prices are a significant component of the Consumer Price Index (CPI). Inflation occurs when the general level of prices for goods and services rises over time. If property prices decline, it can lead to lower inflation, as property is a significant contributor to the CPI. This can have both positive and negative effects on the economy. Lower inflation can lead to lower interest rates, making it easier for businesses and individuals to borrow money. However, if inflation is too low, it can lead to deflation, which can have negative economic consequences, such as a decrease in consumer spending and business investment. Conclusion Volatility in the share market, bank collapses, and property prices are all interconnected, and changes in one area can have a significant impact on the others. Investors and policymakers need to be aware of the potential risks associated with market volatility and bank collapses and take steps to mitigate these risks. This can include diversifying investments, implementing stronger regulatory measures, and promoting economic stability. By doing so, we can help ensure a stable and prosperous economy for all. WHAT ABOUT YOU?Want to chat about your situation? Contact us on 099730706 line 2 or here
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![]() What is a Look Through Company or LTC? That's a good question. Basically, it's the replacement for the old LAQC (Loss Attributing Qualifying Company). At tax time, you look through the company to the shareholders, and distribute the income (or losses) to them. How is it different from a normal company then? A "normal" limited liability company can pay dividends and pay salary to its shareholders. Whatever is left after that is what it pays tax on. A LTC distributes all the profit (or loss) to the shareholders. It's more like a partnership, but with a limited company wrapped around it. How do you figure out who gets what? The income distribution is based on the shareholding. So if you have a 90% shareholder and a 10% shareholder, then the 90% shareholder gets 90% of the profits/(loss) and the 10% shareholder gets 10%. So, what's the point of that? Many people use LTCs to own their residential rental investment property. A common strategy that financial advisors recommend is to purchase negatively-geared rental property (negative gearing means that the expenses are more than the income). The shareholders have to top up the mortgage with their own money, often $50-$100/week. The LTC then has losses at the end of the financial year. These losses are then distributed to the shareholders. In a rental property scenario, rental losses can only be offset against other rental income Can you give me an example? Sure. Mr Smith owns a rental property in his own name, which generates about $11,000 of income (after expenses) per year; he also earns $130,000 per year before tax. Mrs Smith works part-time. They set up a LTC and it purchases a negatively-geared rental property. They put about $125 a week into the LTC to help pay the mortgage. Mr Smith has 99% of the shares, and his wife the remaining 1%. At financial year end (31 March), there are losses of about $10,000. Mr Smith gets 99% of these to offset against his wages. The formula is Wages + rental income - LTC losses = net income In this case, it would be $130,000 wages + $11,000 rental income - $9,900 LTC loss = $131,100 Mr Smith paid $33,820 in PAYE tax, based on his salary of $130,000. Because he can utilise the LTC rental loss and offset it against his personal rental income, he only has a small amount of tax to pay at the end of the year ($363). See this article for more info and examples of how losses work. How is this different from a partnership? Another good question. See this article for an explanation. I'm convinced. How do I get a Look Through Company setup? Simple! Fill in the form here and click Submit. We'll send you an invoice, and within 2-3 working days your company should be incorporated. Easy and painless. I've got a few more questions. Can I talk to somebody? Sure. Contact us today. * From 1 April 2019, tax losses will no longer flow through from LTCs that are residential land rich. Please see us or call for advice on how to get the best results from your portfolio, build wealth and minimise tax
Here are our 6 tips for buying a holiday home: 1. Location is key: When it comes to rental properties, location is everything. Look for properties in areas with strong rental demand and good potential for appreciation. 2. Do your research: Before making any investment, it's important to thoroughly research the market and the specific property you're considering. Look at factors like rental income, occupancy rates, and local economic conditions. 3. Be prepared for the long-term: Rental properties can be a great long-term investment, but they also require a lot of work and attention. Find a good holiday home property manager and cultivate the relationship. You are both in it for the long haul. 4. Have a plan for vacation rental: When it comes to beach or holiday homes, it's important to have a plan for how you'll use the property when you're not there. Will you rent it out to vacationers or use it as a personal getaway? Knowing how you'll use the property will help you make informed decisions about things like location and amenities. 5. Invest in amenities that renters want: Amenities that renters are looking for include things like high-speed internet access, a heat pump and off-street parking. Investing in these amenities can increase the appeal of your property and help you command higher rents. 6. Think about the future: As much as you are thinking about the present, don't forget to think about the future. Evaluate the current market trends, and anticipate what could happen in the future. This will help you make a more informed decision and avoid costly mistakes. Want to talk about tax? Wealth creation? Planning for retirement? Contact us on 099730706 line 2 or email us.
Investing in property in New Zealand can be a good opportunity to generate rental income and potentially earn long-term capital appreciation. Here are some things to consider when investing in property in New Zealand:
NEXT STEPSContact us on 0800890132 line 2, or via our contact form. We'll help you evaluate your situation and connect you with the right people.
![]() Perhaps you’ve been thinking "I want to buy property," but you’re worried about your debt. Here are 5 debt pay-off strategies! Before you start looking for a real estate agent, scheduling property tours, putting down offers, it’s time to get rid of your debt once and for all - or reduce it as much as possible. When you’re ready to invest in real estate, EpsomTax.com can help you along the way! In the meantime, these tips will help you tackle your debt burden. Think Outside the BoXAs you browse local listings, you might be worried that the high asking prices will prevent you from breaking into the housing market. But if you think outside the box, you might be surprised by your options. For example, you could consider buying an apartment, purchasing a home with space for a “mother-in-law” suite that you can rent out, or buying a home “as-is.” If you choose to buy a home “as is,” you’ll save money upfront, but you’ll also be responsible for fixing any problems after you move, like structural issues, eliminating mold and mildew, patching leaks, and getting rid of pests. A seller will not be responsible for fixing problems like this. OPTIMISE YOUR BUSINESS STRUCTUREIf you’re a business owner, there are a few things you can do to increase your take-home pay and increase your home buying budget. For instance, by structuring your business as a Limited Liability Company (LLC), you can take advantage of additional tax breaks. With LLC status, you can also rest assured that your personal financial assets will be better protected if your business runs into economic trouble. Before you start gathering your paperwork for filing, check the rules in your area for forming an LLC. CONSOLIDATE YOUR DEBTS What if you’re juggling multiple loans or forms of debt? You might be wondering which debts you should pay off first, or you might stress out about missing payments. Consolidating your debts can help you avoid these pitfalls. If you’re interested in consolidating your debts, Nectar recommends calculating your average interest rates first, because you’ll want to ensure that your debt consolidation loan interest rate is either equal to or lower than this figure. PICK UP A SIDE-HUSTLEIf you’re struggling to make all of your payments on time, you may want to call up your creditors and talk to them about setting up alternate payment plans. But you’ll also want to explore a few ways that you could increase your income. Picking up a side-hustle is a great way to pay off your debts on a faster timeline and make your payments more comfortably. Which side hustle should you pursue? Unity recommends walking dogs, joining a ride-share app, doing odd jobs for your neighbors, or becoming a mystery shopper. SMART BUDGETINGOverall, savvy budgeting is the key to paying down your debt. You need to make sure that at the end of the month, you have plenty of money left over after paying all of your necessary bills. If you know that you’ve been overspending, it’s time to start tracking every penny you spend. Try tracking your spending carefully for a month, and then sit down to go over everything you spent money on. Where can you cut back? Is there anything unnecessary that you were purchasing that you can eliminate from your budget completely?
Dealing with debt can be frustrating. But with the right approach to personal finance, you won’t be stuck with your debt forever. By saving carefully, looking for additional sources of income, and budgeting well, you can pay off your debts and buy your dream home! Are you interested in real estate investing? Turn to EpsomTax.com to get started! Fill out the contact form on our website today to get in touch or call 099730706 line 2 Are The Losses From My Rental in NZ Tax Deductible in Australia if I'm Working There? Part 26/6/2022
The Australian Tax Office (ATO) wrote back! Call me pessimistic, but I didn't think we'd get a reply. Nonetheless, a few days ago it arrived. Here's the two questions we asked, and the response of the ATO regarding personal attribution of losses from a Look Through Company (LTC): Question #1 Seeing as a New Zealander working in Australia is taxed on his worldwide income, does the ATO allow losses from rental property in New Zealand owned by a New Zealand LTC to be offset against personal waged income earned in Australia? Answer "For Australian income tax purposes, companies are unable to distribute lossees from rental properties (or other losses) to their shareholders." In other words, No. Question #2
Seeing as a New Zealander working in Australia is taxed on his worldwide income, does the ATO allow losses from rental property in New Zealand personally owned by said individual to be offset against personal waged income earned in Australia? Answer "If an Australian resident's overseas property tax deductions are greater than their overseas rental income, they will have a foreign tax loss. They can use their foreign income loss to reduce their Australian income." In other words, Yes. So, what's in it for me then? Well, dear reader, the point is this: If you have negatively-geared rental property in New Zealand, which is personally owned i.e., not by a company, then you can claim the losses against your tax in Australia. How it works is this:
BUT, there is a gotcha. This means that
So, you need to consider the long-term scenario before doing so. We recommend you talk to an accountant who is skilled in this area first. What about...
In this blast from the past (2013), Daniel Carney of Goodlife Financial Advice brings you this insightful interview with Garreth Collard, Principal at EpsomTax.com The topic in question is whether an LTC is the right ownership structure for your Residential Investment Property. We pick Garreth's brain to get to the heart of whether an LTC is right for you. A 'must see' for any investment property owners! Topics Discussed are:
* From 1 April 2019, tax losses will no longer flow through from LTCs that are residential land rich. Please see us or call for advice on how to get the best results from your portfolio, build wealth and minimise tax
![]() Inland Revenue released a Tax Information Bulletin (TIB) in September 2019, which clarified this. For the purposes of this blog post, we are going to assume that the LTC or an individual only holds residential rental property i.e. no commercial, they are not a trader or an associated person or a developer etc, they don't have an Airbnb-style short-stay accommodation house in the picture. Can losses from an LTC with residential rental property be offset against income from rentals owned by a partnership or in your personal name? It depends on whether
However, the answer is essentially, "Yes", if:
So the result is, you can have a negatively-geared LTC, and given the above points, the losses can flow through to you as a shareholder. You can then offset this against profits from a personally-owned rental (either solely owned or in a partnership). The situation also works in reverse ie there are profits in the LTC and losses in the personal/partnership rental. Note that you can't offset any losses against income from other sources e.g. wages, like you used to in the good old days. That is what the concept of "ring-fencing of losses" means. The losses are "ring-fenced" so that they only apply to residential rental property. Some interesting points
Do restructure strategies such as selling your old family home to an LTC still work? We have previously recommended this, in blog posts such as this one. The answer is now a big "no." Why? Changing ownership structures will now not shift/change non-deductible debt into deductible debt in any residential investment property scenario, including short-stay accommodation. For more info, see this blog article For more info, the IRD Sept 2019 TIB is below As always, situations vary, so please contact us for advice on your specific situation. Call 099730706 or email us here ![]()
With the government's shock introduction of laws slashing interest deductions on existing rental properties, where can you as an investor put your money? What will get you the best return while still maximizing tax deductions? We present 9 strategies:
WEBINAR:
SUMMARY OF CHANGESChanges announced in April 2021 by the government:
HOW DOES THIS AFFECT ME?At present, when you receive rents, you can offset expenses against that rental income to reduce the taxable profit. A big part of this is interest paid on the rental mortgage/s. If the expenses are more than the income (a "loss"), the Ring Fencing laws mean the loss can't offset non-rental income, and the loss instead is carried forward to the next year. If you have two or more rentals, the loss from one property can offset the profit from another (depending on how your affairs are structured). However, under these new laws, the interest deduction will (over 4 years) be reduced, then finally removed. Rental properties will make more profit, and for almost everyone: there will be a lot of tax to pay. And of course, if you can't claim the expenses on interest, but still have to pay it... where does the money come from? You have to raise the rent. WHAT SHOULD I DO?
FAQQ: So what can I claim? A: You can claim all the usual costs e.g. property management, repairs & maintenance, rates, insurance, legal etc. Re interest: It depends on timing. The following chart shows how much you can claim, depending on when you "acquired" the property: Q: How do I work out the tax impact? A: The calculator below will help you work out the taxable income. The exact tax depends on many things e.g. owned personally or via a trust or LTC? How much wages you receive etc etc. Note that this calculator assumes you already own/have "acquired" the investment property/ies. ![]()
Q: My rental was a new build. Does it still qualify as a new build under these laws?
A: Probably not. Q: Is short-stay accommodation caught by the new interest deductibility limitations? A: It would appear that mixed-use-assets (MUAs) - which are holiday homes partly used personally and which are vacant for at least 62 days in a year - are not caught by these new rules, but IRD specify this (at 2.33) "the Government considers it important that where a residential property could be used to provide long-term rental accommodation, the income tax treatment is the same whether the property is used to provide long-term rental accommodation or short-stay accommodation. Any income tax advantage provided for properties used for short-stay accommodation could reduce effective housing supply." In other words, it would seem that yes, it is caught. Just remember that this is all "draft" at this stage, so not actual law. Q: When did I "acquire" my rental property? A: For tax purposes, a property is generally acquired on the date a binding sale and purchase agreement is entered into (even if some conditions still need to be met). More info here. Note that for the purposes of the changes outlined here, a property acquired on or after 27 March 2021 will be treated as having been acquired before 27 March 2021, if the purchase was the result of an offer the purchaser made on or before 23 March 2021 that cannot be withdrawn before 27 March 2021. Q: My property sale will be taxable due to the Bright-Line Test (BLT). Can I claim the interest costs in that scenario? A: No one knows. IRD say "The Government will consult on the detail of these proposals. Consultation will cover an exemption for new builds acquired as a residential investment property, and whether all people who are taxed on the sale of a property (for example under the bright-line tests) should be able to deduct their interest expense at the time of the sale." Q: How do the "main home" changes work? A: Actually, it reminds us a bit of how CGT works in Aussie. There is a great explanation at Stuff together with an example. (Thanks Stuff.co.nz!) |
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