Need Advice - bought & sold within short span of time

[Anita]

We have a small portfolio that we manage.

Lately , we bought a house with a swimming pool with the intention of keeping it for our retirement and to rent it in the interim. However, with the maintenance of swimming pool over 60k litres and tenants partying on the swimming pool and neighbour complaints etc ( as well, we were topping over $200 pw on top of the rent we received) etc we were pushed to sell the house within 8 months we bought. We sold it pvtely, and it was more than $24k of the price we bought, and the purchase and sale were made in the same tax year.

Same year, we bought a unit , with the intention of kids to get into better schooling, and rented with the hope of moving in, when schools started, however with the bodycorporate and other issues with the neighbouring tenants' ,upcoming repairs, we had to sell, within 8 months, pvtely more than $9k we bought it for: however it was bought in prev tax year and sold in the following tax yr.

Our accountnt suggests we to declare/pay the tax for the house with swimming pool as it was bought and sold int he same tax year. We wouldn't mind doing so: we bought it to keep it for us to move in later in another few years however, we had to reluctantly sell due to those circumstances came up after we bought & rented the massive house with swimming pool etc to tenants. We are jsut wondering whether this 'sale' would taint our name as traders and we want to continue to remain as 'long term' investors not as traders. This is one off sale and need your advise/suggstions/thoughts to recover and move forward.

[freezinhot]

What structure was the properties brought under.

FH

[MoatMaster]

We have a small portfolio that we manage.

Lately , we bought a house with a swimming pool with the intention of keeping it for our retirement and to rent it in the interim. However, with the maintenance of swimming pool over 60k litres and tenants partying on the swimming pool and neighbour complaints etc ( as well, we were topping over $200 pw on top of the rent we received) etc we were pushed to sell the house within 8 months we bought. We sold it pvtely, and it was more than $24k of the price we bought, and the purchase and sale were made in the same tax year.

Same year, we bought a unit , with the intention of kids to get into better schooling, and rented with the hope of moving in, when schools started, however with the bodycorporate and other issues with the neighbouring tenants' ,upcoming repairs, we had to sell, within 8 months, pvtely more than $9k we bought it for: however it was bought in prev tax year and sold in the following tax yr.

Our accountnt suggests we to declare/pay the tax for the house with swimming pool as it was bought and sold int he same tax year. We wouldn't mind doing so: we bought it to keep it for us to move in later in another few years however, we had to reluctantly sell due to those circumstances came up after we bought & rented the massive house with swimming pool etc to tenants. We are jsut wondering whether this 'sale' would taint our name as traders and we want to continue to remain as 'long term' investors not as traders. This is one off sale and need your advise/suggstions/thoughts to recover and move forward.

Get a new accountant! The timeframe of ownership is irrelevant - it is your intention at time of purchase that determines whether you will be taxed on profit from sale.
Sack your accountant then gather anything together to validate your intention - you must have had conversations with someone..then stop worrying.

I know of a case where a property was sold within 2 months for considerable profit. Purchaser had intended to buy & hold but was made an offer they couldn't refuse. Managed to prove intent because had applied for consent to make longterm alterations.

Did you have a conversation with your lender, solicitor or anyone else when you bought about your plans. If so ask them to verify in writing, file it & carry on.

[Keys]

Agree with MoatMaster.

Intent is king here.

Did you have a fixed term loan on either property. Long term fixed term?

[Rosco]

Get a new accountant! The timeframe of ownership is irrelevant - it is your intention at time of purchase that determines whether you will be taxed on profit from sale.
Sack your accountant then gather anything together to validate your intention - you must have had conversations with someone..then stop worrying.

Great answer!!

Be very careful about the pattern you could be creating. Two sales start to look suspicous, but it there is a third or fourth quickly, then IRD could argue that there is a pattern emerging.

Something in your favour is that you made tiny money from each.

A conservative approach would be to not claim the tax losses from holding. I'm not saying you should do this, but it is another option.

Ross

[Anita]

Thank you guys for your thoughts.

Yes, both were bought under LAQC, with the hope to hold for a while.

True, it was fixed for 5 yrs , for the house with swimming pool, we still continue paying the mgge at 9.1%( or there around, I think) as it was locked for such long, for 5 yrs, the best rate at that point in time, with the intention to keep, it won't xpire til 2011, I think. ( we are looking at breaking it now, as it was high break costs those days, anyway, it's a different story).

We also intended to subdevide the downstairs / to make it a separate dwelling and drew the drafts with our architect but we didn't quite proceed as problems came up with the swimmingpool and the tenants issues and had to sell the property.

[ambitious]

Agree with all the advice, intent is the key, and you also have the long term loans. Sack your accountant.....I am a fan of Ross's so suggest you speak with him also....

[Green Fish]

I agree with the sacking of the accountant.

I don't agree with the engagement of another one.

This is a legal issue, not an accounting issue.

Paying an accountant for this sort of advice is like paying a plumber to rewire the house.

[watchful]

OK, so playing the Devil's Advocate, don't the replies to this thread support the need for the introduction of a blanket CGT - at least this would remove all ambiguity?...

[Anita]

whoops CGT...don't you think, it's too 'early', to ask the trouble.

Also, having difficulty to see how it becomes a 'legal' advise, Green fish - wouldn't this still be accounting?

Yes, we may change our accountant who is not a 'property accountant' and looking for someone knowledgable and reliable.

We both, my husband and I , have been thro' to several accountants 'so called great' and feel our money spent on them was an utter waste, with their meetings/time spent, with 'no recommendations' to proceed.

They only were listening to what we did in the past, and now they are waiting for us to bring our 'tax returns' / apply for special tax code etc etc for the coming years to employ them ( for which we are happy) but we don't feel convinced.

[Perry]

Anita

Lurking on PT is a thread in which someone
postulated that if your professional advisers
knew more than you did, you were in quite
a precarious position. It took quite a lot to get
one's head around that postulate. If you can
find that thread, please let me know - I can't!

They are advisers. Learn as much as you can
from other PIs (here on PT, or wherever) and
help to guide your advisers in the direction that
you want to go.

Accountants are conservative by professional
nature: sometimes they need a little goading.
But you have to know the how, why and where
for when you need to push.

[revdev]

Perry, don't you mean if YOU know more than your advisers, then you're in trouble?

[Perry]

No: that was the conundrum. I do wish
I could find that thread. It seemed such
an off-the-wall stance, initially. As it un-
folded, the premise became clearer.

[Perry]

Blows off dust and cobwebs . . .

My already low opinion of the vB search engine sank
with out a trace, yesterday. So I used a web-based
search engine, aimed at PT only. I did eventually find
what I was after. It suffered a little from the proverbial
'Chinese whispers,' but is predominantly correct.

Here tis:

Daniel Feller.
PT Investor Secrets.
Feb 2007
4. Should you choose to become an investor you
need to know more and constantly educate your-
self in a wide range of subjects. As a saver or new
investor you need professional advisors to give you
advice. A professional investor on the other hand
needs a professional advisor to help execute plans.

Daniel referred to it again, here, but I failed to do the
follow-up research. Then the slight twist was applied,
in this thread by Keleri: Family Trust security even
though still following the same general principle, viz.

Ivanhoe's last sentence in this post is what stuck
in my mind.

It's great we have sites like Propertytalk and MA forum so
we are reasonably well informed about asset planning
and can raise an alarm when advice give does not sound
right. Yet the only safe way I thing is to learn as much
a you can about this subject - I think Daniel Feller referred
to it when he commented on professionals in his interview,
a couple of months ago.

If your professional advisors know more than you -
you've got a problem!

I'm pleased that I've laid that to rest, now. Especially
as I've referred to it, hazily, many times. The topic is
also covered at little, in this thread.

[MoatMaster]

I agree with the sacking of the accountant.

I don't agree with the engagement of another one.

This is a legal issue, not an accounting issue.

Paying an accountant for this sort of advice is like paying a plumber to rewire the house.

I'm also trying to work out how this is a legal issue.
Find a good IP accountant - I would think this forum would be a good place to start. Do your own research...get a good understanding of what your accountant should do & know, get out of their way & let them do their job...but always always take the time to check things. Once you have a reasonable understanding, it doesn't take too much to spot a problem.