Q1.  What is the land tax liability for a couple who own property in joint names and land value is in excess of the threshold for both of them?

A1. There will be three assessment for them, one for the husband, one for the wife and one for the joint names, they will need to pay land tax under the joint names with one land tax free threshold only. Then they will get the tax paid as a credit ( not fully ) under their personal assessment. Of course this method only applies to NSW land tax.
 
Q2. Yuk - could you provide a case calculation for tax filter for scenario of 2nd and 3rd mortgage with say 40% return?  What structure you may consider?

A1. Normally the investor would need to pay tax on the 40% income, thus I would suggest the investment would be under a lower income earner’s name or a super fund’s name to minimise the income tax. The calculation is easy, principle amount x 40% x days of investment/365 days.

by Shae Smith, Assistant Editor

Your $500 in 1967 would be equivalent to $5,236.35 in 2009!

Dave’s comment below in red

The media is at again.

And yesterday, 'inflation' reached it's highest annual level since October 2008, supposedly 'smashing' through the Reserve Bank of Australia's (RBA) own self imposed target inflation rate of 2 - 3%.

However, the media were quick to point out that smokers were at fault - again! You see, the new 25% tax on ciggies apparently caused the inflation gauge to increase as much as 0.5%.

And of course, with the RBA meeting today to decide to increase rates, according to one journalist these figures are a sure fire indicator that the RBA will have to raise the cash rate.

But then, according to another journalist, at the same paper, because lending and new credit has slowed, these inflation figures are only a warning sign, but it's unlikely that interest rates will increase.

Then there's the 'other guy' that suggested a 5% chance of a rate cut. Er, that's unlikely.

Who do you believe? None of them. They're all guessing.

One thing's for sure, it'll be a tough day for those at the RBA office today.

But you'll notice that the inflation figures aren't from the Australian Bureau of Statistics. In fact these figures have nothing to do with the supposedly all-important Consumer Price Index (CPI).

Now, the CPI data is only released quarterly and for over ten years the RBA decided that it needed monthly data because '...greater frequency may help to identify changes in underlying inflation more quickly.'

So the Melbourne Institute came along and developed the 'Inflation Gauge' that you heard so much about yesterday.

There are a few differences between the two measures, the most obvious one being the volume of the data collected. But most importantly, the Inflation Gauge seems to be a fairly accurate tool of consumer price inflation.

But however accurate an indicator is, it disguises what's really important. And that is, whatever the mainstream press tells you, inflation just makes you poorer.

Let me explain...

As I mentioned before, the RBA has a target rate for inflation of about 2 - 3% per year. So basically, each year your dollar is worth about 3 cents less than it was the previous year.

Or so it seems. The RBA has a groovy tool on its website called the inflation calculator. So while it's a bit of fun to play around with, it's frightening when you work just how little your money is worth now.

As an example, your $500 in 1967 would be equivalent to $5,236.35 in 2009! Which gives you an 'average' inflation rate of 5.8% over that period. Or another way of thinking about it, the cost to you has gone up 947%.

Or to put it another way, the value of the dollar has declined by 94.7%.

How's that fair?

See, I think anything that takes precious dollars out of your pocket as evil. But there are of course the arguments that inflation is good for you.

One of the biggest 'pro inflation' arguments is that it's good for your debt levels.

If you have a fixed rate mortgage and the inflationary beast comes along, then as your salary rises your debt levels remain the same and because of inflation your mortgage essentially becomes cheaper to pay off as it takes up less of your salary.

While it sounds like a simple solution, it doesn't work like that.

Firstly, inflation affects your everyday costs of living too. And you, like most people probably only have your salary reviewed once a year. You'll spend a whole year waiting for your salary to go up to meet your already rising living expenses.

But inflation doesn't stop once your salary goes up, it keeps going. So you're still struggling with the ever increasing living costs, even though you just had a pay rise. It's a scary thought to think that even though you're getting paid more, you still can't get on top.

Your pay goes up in nominal terms, but in real terms your pay has actually dropped.

There's even the misguided attempt to suggest that inflation is what the economy needs, even if it isn't what the consumer needs.

You see, central banks like the RBA believe that inflation is one way to ensure that there is moderate growth to the economy.

Most central banks believe that by slowly devaluing your dollar, and in turn decreasing your purchasing power the economy can grow at a stable pace.

And not to be outdone on the 'inflation is good for you' bandwagon is the US Federal Reserve. A few economists are suggesting that the only way to dig the country out of the subprime crisis is to raise the target inflation rate so people can pay off their debt!

That's right, they'll have to pay three or four times the price for a litre or pint of milk, but at least they can pay off the debt. Except that will probably encourage more debt as living costs rise and wages don't keep pace.

If the US thinks higher than 'normal' inflation will fix the subprime crisis what are the chances of the RBA following suit? I mean, we all know that Australia has some of the highest personal debt levels in the world.

At the end of the day, all inflation proves is just how much individuals are manipulated by central banks. It's sad, but true.


Shae.


[Please note: neither the authors nor any of the employees of Port Phillip Publishing own shares in any of the stocks discussed in Money Morning unless specifically stated. The articles do not give trading or personal investment advice, but are intended to provide a useful, independent news and analysis service to supplement your own investing and trading. Consult your financial advisor before making any investment decisions.]

Dave’s comment;

Great article as it identifies that the only way to hedge against inflation is to own assets that go up in value in line with inflation.

This is why for average people who earn average incomes, property investing is just about the only way to create wealth

It is the inflation cycle that creates real wealth if you know what you are doing and as you can see by the headlines, wealth is brought about by the constant de-value of our money – nothing less.

Note that inflation rates of 5.7% per annum have caused wages to increase over time and it is this basic phenomenon that makes sense out of the argument that house prices having to continue to rise

As an example, your $500 in 1967 would be equivalent to $5,236.35 in 2009!

The article states that this is an annual increase of 5.7% per annum.

I like to do numbers in rounded figures because it’s nice and easy so as you can see below;

6% per annum increase means that most things would double in value every 12 years (the rule of 72). They have doubled to $1,000 between 1967 and 1979 and to $2,000 by 1991 and to $4,000 by 2003 and to $8,000 by 2015

5% inflation means that prices double in value about every 14 years

$500 in 1967 to $1,000 in 1981 to $2,000 in 1995 to $4,000 in 2009 to $8,000 in 2023

Anyone remember what wages were back in 1967 – I wonder how the 5% or 6% thing works on wages.

I came to Australia back around then and my 1^st wage was about $40 per week or about $2,000 pa.

Using the 6% inflation guide-line it means that wages in 1967 would $4,000 in 1979, $8,000 in 1991, $16,000 in 2003 and $32,000 in 2015 – I don’t think so.

Let’s try the 9% per annum rule which means they double every 8 years (9 x 8 = 72)

 

$2,000 becomes $4,000 in 1975, $8,000 in 1983, $16,000 in 1991, $32,000 in 1999 and $64,000 in 2007, and $128,000 in 2015.

Now that’s looking a little closer to the mark and it stands to reason too, mainly because to keep up with a 5% inflation rate we need to earn 9% more because of – you guessed it – taxes.

 

Whichever way you look at it wages will continue to rise and they have to, because everything else continues to rise, it has to, because the RBA and the pollies and the banks promote it.

So why do houses go up in value by more than inflation – it’s simple – because average people can leverage by 90% to buy a house.

If we had to pay cash then it stands to good reason that houses would go up by 5%, per annum anyways, but as we have banks who encourage us to leverage, and governments who encourage us to pay stamp duty, and because it is only the deposit that needs to go up by 5% to keep in line with inflation, house prices have to continue to rise by more than the inflation rate.

And that’s how the world works. The average person is encouraged to buy property through advertising and by lending us money. No encouragement to borrow, no taxes, no fat cats.

So when Robert Allen says “Buy Right and Hold on Tight” he is correct – IT WILL MAKE YOU WEALTHY over time.

Learning how to hold on is the key to your success. Managing your cash flow (shortfalls) while you wait for the government, the banks, the RBA and all to help inflate the $$$ will make you wealthy. The key for average people to become wealthy is to learn how to own assets that go up in value.

The magic of property is that the tenant and the government helps you hold the property and then inflation helps you own the property outright. When you own 4 to 6 properties outright, inflation will make you wealthy beyond your wildest dreams.

Wishing you every success

Dave Dorian

Please note: These comments do not give trading or personal investment advice, but are intended to provide a useful, independent analysis service to supplement your own investing. Consult your financial advisor before making any investment decisions.

Below is a link to an article posted on EzineArticles.com, check it out:

http://ezinearticles.com/?A-Simple-Property-Investing-Plan-Anyone-Can-Implement&id=4065493

1. Can we take advantage of the generous government incentives for ‘green’ houses e.g. feed-in-tariffs rebates and tradeable carbon certificates before they are withdrawn?
   • Government incentive is a win win strategy for tenant and environment for long term. You pay for investment on Green facility to save tenant utility bills and save the environment may not directly benefit you, but if the cost of Green material and installments getting cheaper because the government rebate, you also benefit.
     
     
     
2. What implication does the recent Henry Tax Review have for property investors in Australia?
   • Henry Tax review – all because government worry about no money to take care people in the country, when people no happy, they have to go. Overall, they want to charge more tax on mining industry, keep people work longer, put more money into super, keep investment longer, taking over state government stamp duty and land tax.. if you want to make money for nice wine, nice car in short term, maybe not support by this new tax reform later, if you want to keep long term investment and support your retirement, I think this reform will benefit you. No one now what they going to do in detail, but in big picture, there is the intentions 1. Keep the party in the parliament as long as they can, 2. Keep feeding people in the country ( pay by rich people).
     
     
     
3. Are you concerned about the developing sovereign debt crisis in Dubai, UK, US and Europe (specifically Greece & Spain)?
   • I don’t have brain smart enough to comment on the earth, sorry

Q: How can Mortgage Insurance save you when you are in trouble?

A:

Maree Imbruglia – Mortgage Broker - AUSTRALIAN FINANCIAL INNOVATIONS

Mortgage Insurance is an Insurance that is paid if you borrow more than 80% of the Market Value of the property. Mortgage Insurance is an insurance which covers the Bank not the client. If the loan goes into default and the Bank forecloses and the property is sold for less than the loan amount, the remaining funds are then paid from the Mortgage Insurer. The Mortgage Insurer then approaches the client to recoup these funds.

Dave Dorian – The Next Property Millionaire Coach and Mentor

My understanding that in this country it only covers the banks even though the borrower pays the premium over 80% LVR.

This means that in the event of foreclosure the banks would get paid out by the mortgage insurer if the property sold for less than the mortgage and then the mortgage insurer has the choice to pursue the owner for the balance of the debt.

In some countries they have a slightly different system whereby the purchaser takes out a life insurance policy whereby the debt on the house is covered under certain circumstances  

There may be other variations.

There are benefits and it is recommended to use mortgage insurance to get 2 houses rather 1 in a safe property market.

Mortgage insurance used wisely can be very beneficial to the start-up investor if buying the right property in the right market