selling chattels separately

[aplomb]

Hi All,
What are the legal and tax implications for a vender if they split off the chattels separately and sell for cash the rest of the house is sold as usual. Example: $300,000 purchased price + $20,000 cash for chattels. I don’t know the exact reasons for this or the amount to be offered for chattels. Of course this will go to the lawyer and accountant but I would appreciate some advice from anyone please.
A

[CJ]

It may be a mechanism to control depreciation recovery on the chattels.

Not sure why cash is required. Maybe they are trying to ensure all the sale proceeds don't go to the bank as the mortgage is only secured against the house/land, not chattels. If the proceeds were $320k, then the bank may take it all (ie, in a cross security situation).

Just be careful it doesn't effect your financing as the bank may just look at the $300k, rather than the $320k had it not been split out.

[buxlo122]

The chattels are usually listed separately from the purchase price of the property for depreciation/valuation reasons.

Just because they have sold the chattels separately does not change the tax position. Money is still money. However it could mean they are trying to do something doggy with their books. Either way that is issue between them and the IRD.

It could have something to do with security as CJ suggested.

It could also have something to do with a relationship property split.

I think it probably on the advice of their lawyer for some illogical reason. Often the left hand does not know what the right hand is doing. Lawyers are good like that.

[aplomb]

Wow thanks people for your quick response.

I'm thinking of this from the vender's perspective (us) and not the purchaser. It's the purchaser that wants to pay for the chattels separately. Why I don't know but would this have implications tax or legal wise for us? I believe the cash amount for chattels to be around $20,000. Haven't seen the offer yet and only had it explained by agent (who isn't exactly sure either).

Just wanted to know if anyone has sold this way or something similar?

Thank you

[graemeh]

Oh. It looks like the purchaser wants to be able to separate out the cost for some reason.

If you own this as an investment property and need to consider depreciation recovery then having the separate figure may be a problem for you (depending on the figure and the book value of the chattels).

[CJ]

Sorry - assumed you were the purchaser and the vendor had suggested it.

As Graeme said, just check the deprecation recovery position.

Also check with your lawyer that this isn't a trick to get out of $20k on settlement (not suggesting it is but they may be able to enforce the house purchase but renig on the chattel purchase, giving you the headache of determining whether to try to enfoce the separate contract.)

[aplomb]

Hi - no this one is our own home. I'm not clear yet on why they want to do this but if its all above board and has no tax implications on us we'll look at doing the deal?

Thanks for your imput

CJ - it was a little unclear from me to start with and yes I will definitely be running this past our lawyer and probably the accountant too.

[ChrisD]

If it's your own home then there's obviously no tax implications. However, I would tell the purchaser "no" anyway because it seems unnecessarily complex. Just tell the agent that your lawyer suggested this would be too costly. I can't see any valid reason why the purchaser would want this.

[graemeh]

CJ makes a good point about the attempt to get out of $20k on settlement. We sold a property last year with furniture and on settlement day they say one of the dining chairs is missing. It was never there when they inspected the property before they made and offer but they used that to get out of $200 on settlement day.

After settlement I found out they were such a pain in the bum that the property manager we were using refused to manage the property for the new owners.

[CJ]

If it is your home, then there will be no tax implications for you.

Provided you get all the money before settlement, and there are no additional warranties. they it should be fine.

[aplomb]

Yes - we'll be cautious about this one...very cautious

[fpl]

Did you ask the vendor?

Would it be wise to get your lawyer involved for the money you plan to invest?

[drelly]

Hi Aplomb,

My own home is a multi-income property that I'm looking at selling as we now have a baby, which doesn't work so well as it did when we were foot-loose and fancy free!

When we bought, we decided not to depreciate chattels, so when I sell, I'll be offering it to investors with the benefit of chattel depreciation at maximum value.

If we had depreciated ourselves, then we'd be in the difficult position of not wanting to have depreciation recovered, while any likely purchaser would want to buy with a chattels schedule at the highest value they could to maximise their own depreciation.

cheers,
Dave

[aplomb]

Thanks everyone for your input. I have since found out the purchasers are refugees and are using KS to help purchase their first home. Maybe KS will only lend up to a certain value on a property and this is why they want to purchase this way?

I have spoken to the lawyer and he said it's doable even if a little unorthodox. The purchasers lawyer would need to draft up a separate contract for the chattels (therefore incurring the costs for this) and he'll look at before giving the go ahead. The separate money for the chattels would be held in your or their lawyers account until transfer on settlement date. The signing of the contract for the house would happen after the chattels contract has been agreed and signed. This is all I know so far and as yet we haven't agreed to sell this way.

[CJ]

Thanks everyone for your input. I have since found out the purchasers are refugees and are using KS to help purchase their first home. Maybe KS will only lend up to a certain value on a property and this is why they want to purchase this way?

The Govt gives you $1K for each year in KS (upto $5k) but only if the house is a cheaper house (cant remember the cut off - $300K??? or $400k for Auckland???.

Basically gives them an extra $10k from the govt for nothing, plus they take out all their KS contributions (incl Govt contributions).