How Do you use cryptocurrency for investment purposes, this comes with risks due to market fluctuations and public opinion. Investors must also consider the tax implications of their investment, regardless of whether they make a profit or a loss. The tax treatment of cryptocurrency will depend on: how it has been used and how it was reported previously.
If you keep or use a crypto asset mainly for personal use, then it is personal. This includes buying items for personal use or consumption. If the asset is a personal use asset and you acquire it for less than $10,000 if there is a capital gain on its disposal is disregarded. If it cost you more than $10,000 to acquire the asset, the capital gain is not disregarded. Capital losses on personal use assets, including crypto assets, are disregarded for CGT purposes.
Cryptocurrency Use and Capital Gains
Investors who purchase cryptocurrency with the intention of it becoming an investment must report any cryptocurrency events on their taxable income. Cryptocurrency is generally classified as a CGT asset. Transactions such as disposal or exchange, or swap are CGT events, which may result in a capital gain or loss. If the crypto asset is held as an investment, it will not be exempt from Capital gains tax and as a personal use asset. Before calculating CGT on crypto assets, it is essential to have records of all crypto assets and transactions. You then convert the value of the crypto assets into Australian dollars.
Buying and Selling Cryptocurrency
Buying or selling cryptocurrency regularly as a trader will be considered taxable income as it is deemed to be receiving an income from this process. Any capital losses or gains must be reported as income or losses. Businesses that are transacting in crypto assets may need to account for them as trading stock or ordinary income. In these circumstances, the cost of acquiring crypto assets and the proceeds from disposing of them is ordinary income. It will be a deductible expense depending on the nature of the transaction.
The complex tax treatment of cryptocurrency can make it challenging to understand its tax implications fully. This is why it is crucial to seek the advice of a professional adviser to ensure you are compliant and correctly classifying your usage. Speaking with an expert can help you navigate the complicated world of cryptocurrency taxation and avoid potential pitfalls.
To summarize, using cryptocurrency for investment purposes comes with risks, and investors must be aware of the tax implications. Whether it is used for personal use or investment, cryptocurrency must be reported, and the tax treatment will depend on its use. Traders and businesses that transact in crypto assets must also account for them in their tax returns. Seeking the advice of a professional adviser is essential to ensure compliance and accurate classification of cryptocurrency usage.
Participants involved with the NDIS are assisted to live independently and plan out their ongoing future, including their home and living goals. The NDIS Housing in Superannuation can provide support to accessing housing for these individuals, but availability is often limited due to high demand.
NDIS Housing in Superannuation
Using your Self Managed Super Fund to invest in an NDIS property is a mid-to-long-term investment that could supplement your super to fund the retirement you want and deserve.
Having a self-managed superannuation fund gives you the ability to leverage your super by borrowing money from a lender to be able to make more sizable investment purchases, such as NDIS Property.
The rules and regulations around using your SMSF to purchase NDIS property can be quite complicated.
An SMSF can borrow money to purchase a house and land package as long as it is purchased together in one transaction (a one-part contract) as a single acquirable asset where the asset is identified up front as vacant land with a completed house on it.
There are specific considerations to consider to determine whether or not the investment property can be purchased through your SMSF.
Location & Demand
The property must be in an area with high rental demand (typically considered as anywhere within a 50-kilometre radius of an Australian capital city or a 35-kilometre radius of a major city).The areas generally fall into these areas and have a vacancy rate of 1% or below (meaning that the rental demand for investors is there).
The property purchased through your SMSF must be ideally as new as possible as it needs to be approved by the bank. This is because the property must be positively geared (income from the rent should be higher than the outgoings on the property). At the very least it should have a neutral cash flow (meaning the incomings and outgoings are relatively even).
No Personal Gain From The Property
The last criterion is that you can’t see any personal gain from your investment property. This includes:
- Living in the investment property or installing tenants known to you.
- Completing any repair or maintenance work (can only be done by licensed third-party tradespeople).
- Organising the property's rent (must be done by a licenced third-party property management team)
- Developing or improving the property - the property can only be maintained to its current standards. No renovations can be undertaken.
Some risks can accompany using your SMSF (Self-Managed Super Fund) to invest in NDIS property – the number one is cash flow. Your loan repayments will come from your SMSF. Sufficient income into your SMSF (including NDIS Rent from the tenant/s) needs to be ensured to make the repayments.
Some ongoing costs can come with using your SMSF to purchase a property. These may include:
- Property management fees
- Accounting and auditing costs
- Building insurance, council, and water rates of your investment property
- Body Corp, if relevant
- Business registration of your SMSF with ASIC.
When you retire, there will be two options available to you with the property.
- Continue to receive rent on your investment property as your pension-based income, or
- Sell the investment property and, once you’ve paid any potential remaining debt on the property, use those funds as your retirement income. You need to reach the preservation criteria to sell the property and not pay capital gains tax.
In short, using funds from your SMSF to purchase an NDIS investment property is not the same as a regular SMSF property investment loan. Doing so should consider guidance from professional advisers and careful planning.
Who pays what, if mum and dad lent me money?
The Bank of Mum and Dad has become one of the largest lenders in Australia, particularly through guarantor loans for purchasing a property. In 2021, 60% of first-home buyers relied on their parents for financial help, with a total of $34 billion in loans towards first-time homes. However, parents need to ensure they are not putting themselves at risk, which is why a divorce settlement agreement should be in place.
To protect any money provided between family members, a written financial agreement is one of the safest ways. Financial agreements allow parties to regulate their financial relationship in the event of separation, giving them more control over financial decisions. Parents often require their children to enter into a financial agreement with their spouse before providing monies for a property purchase. Another option is to provide clear documentation of the money provided between the parties involved, which can be done through a written loan agreement that contains the necessary terms and conditions.
Do you have a divorce settlement agreement in place?
If a child divorces their partner, the settlement must consider the Bank of Mum and Dad loan to the pair. Courts will look for some formality in a loan agreement, including documentation, repayment plan, and any interest charged. It is essential to ensure the circumstances are well documented, seeking advice from licensed professionals and advisers before assisting children with a Bank of Mum and Dad loan. This area is complicated and can have potential complications.
In conclusion, with the rising interest rates, increased mortgages, and higher risks of defaulting on a loan, parents should ensure they protect their money and not put themselves at financial risk. A divorce settlement agreement should be in place to safeguard and protect monies provided to children during this time, and written financial agreements or loan agreements can be used to protect family loans. It is advisable to seek professional advice before providing financial help to children, especially with a Bank of Mum and Dad loan.
Create a divorce loan agreement with your lawyer today here
If you have already purchased your first home, congratulations! The next step in building wealth for your future could be to plan for the purchase of a second property as an investment.
Owning two properties is a great financial ambition and with Australian house prices on the rise, doing so has great potential to improve your financial situation in the long term. But please don’t be fooled – just because you have done it once before doesn’t mean it will be easy! Buying a second property also requires hard work, discipline and effort. Here are some financial pointers to help with the process of buying your second property.
- Property purchase purpose
The first thing you need to understand is why you want to buy a second property. Are you planning to rent out your original property and buy something else to move into? Are you buying a ‘renovators dream’ to knock down and develop? Are you buying because you want a beach house and you will spend half your time in each location?Really understanding why you want a second property before you set out will help to inform all your other decisions in the property purchasing process. For example, if you are buying as an investment property, decisions around location, capital gain potential and rental yield will influence you in a different way than when you are buying something for yourself to live in.
- Your cash flow and budget
There are no two ways around it – having a second mortgage is going to have a significant impact on your monthly cash flow! Ask yourself: can you easily service both mortgages? Do you have a stable income?Better still, keep a budget so you know what you can reasonably handle so you won’t over-extend yourself. The key here, and this is what a lender will look for, is your ability to earn enough to service both your first and second mortgage effectively, on top of the cost of living.
It is important to fully assess and understand your borrowing capacity. (We can help you with this – just give us a call). As with any other home loan application, your second mortgage will be assessed on your income versus expenses. Lenders will look at your overall position of asset and liabilities, which means if you have any existing debts such another mortgage (which you do have), personal loans or credit cards, your borrowing capacity is going to be less, compared to if you were debt-free.
When considering your cash flow and budget, it is also well worth including a ‘safety buffer’ contingency plan. This could be three to six months’ worth of repayments and living expenses, or similar, depending on your savings ability. It is important to have a safety buffer if you are hoping to use your owner-occupied property as security to fund the deposit for the second home.
- Will you be renting out one of your two properties?
If the answer is yes, and for most of you we imagine that you are buying a second property for investment purposes, it’s essential to get a rental estimate for your second property before you make your purchase.If you are just in the research stage, having a rough estimate of rental income will help with setting your budget and understanding your cash flow (see point 2), but if you have chosen ‘the’ property to buy, most lenders will require a rental estimate letter from the real estate agent currently handling the property at the application stage.
Lenders will factor in any possible rental income (if applicable) when determining your borrowing capacity, ensuring it is set at a safe limit – reducing your risk and theirs!
When choosing a property for rental income, it’s important that the property is well located and will be easily tenanted so that it continues to generate income and support itself.
- Loan type & loan structure
Interest rates have been very low for some time, which makes it a great time to consider buying a second property. And right now there are literally thousands of home loan options out there for you to consider. However, there are many variables to take into account when financing your second property purchase – so it’s a good idea to give us a call. Finding the right home loan product for your financing needs depends entirely on your current financial position and your short and long term goals. This is why the right advice is imperative when taking on a higher amount of debt across two different properties. It is best to speak to us about these options and the best way to structure your finances, before you even choose a property to buy, so you don’t get stung later on in the process. A few scenarios we could discuss include:Using your existing equity
If you’ve lived in your first home for some time, there’s a good chance you have grown your equity. Equity is the difference between what your home is worth and how much you owe on it. For example, if your home is worth $550,000 and you owe $200,000 then you have $350,000 in equity.
Tapping into this equity could give you a larger deposit for your second property purchase, which could be beneficial for your borrowing capacity and your overall budget. If you’re looking to do this, you will need to have your home revalued. In order to determine how much equity you have in your home, a lender will perform a valuation using an independent valuer before determining how much you can borrow and approving your loan.
Refinancing or staying with your current mortgage lender
Buying a second property offers the perfect opportunity to give your existing mortgage a health check. Use the opportunity to consider your home loan needs in relation to your future goals and ask yourself how well your current loan is performing for you. If you’re satisfied with the service your lender is providing and you have determined that the interest rate and fees you’re paying are competitive, there may be no need to refinance to another lender. However, there are some record low rates on offer at the moment and if you have had your mortgage for some time, it would be worth talking to us about what other home loan products are suitable for you and your goals.
Buying your second property is by no means a small task. We are here to help you with your financial goals, so please chat to us about how we can structure your loan so your second property purchase can really set you up for the future.