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buy grapes to offset CGT

Discussion in 'Accounting, Tax & Legal' started by salsa, 5th May, 2008.

  1. salsa

    salsa Well-Known Member

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    Hi all,
    I am planning to sell off one IP next fin year which could potentially incur asn amount of CGT of around 100k . I remember I haved read somewhere here about investments to do with grape that could be purchased for tax advantage (proposed by Steve Navra ?) . If anyone know and could enlighten me I would appreciate it.
    Thanks.
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    That was an agribusiness investment scheme on offer a couple of years back via Great Southern - Great Southern - Investment Managers specialising in the Agribusiness Sector

    I'm not sure what NFS are offering to their clients these days.

    Another suggestion is to use the common strategy for minimising tax in a particular year by bringing forward any expenses that you expect to incur within the following year - especially interest costs (ie pre-pay interest on IP or margin loans).
     
  3. salsa

    salsa Well-Known Member

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    Thank you Sim.
    Can we pre-pay interest on IP for more than one year , says paying 2 years up front ?
     
  4. Barracuda

    Barracuda Active Member

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    Not the right thing for CGT?

    By my understanding, the agribusiness schemes are an 'income' tax optimisation strategy, not generating a capital loss that is attributable or suitable to offset capital gains.

    Then again, could be wrong.

    Cheers,

    Barracuda
     
  5. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    At the end of the day - CGT is simply added to your taxable income to determine how much tax you pay. By lowering your taxable income, you effectively lower the total amount of tax owing after CGT as well.
     
  6. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    I don't believe so - I'm pretty sure the ATO only allows pre-paying expenses for the following year.
     
  7. Rod_WA

    Rod_WA Well-Known Member

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    ... particularly if you can lower your taxable income into a lower tax bracket.

    But don't be excited about investing in managed investment schemes based on the possible tax benefits... the investment must stack up in the first place!
     
  8. MattR

    MattR Well-Known Member

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    Absolutely. I've never seen one actually make money, and in fact you end up paying more than the tax saved in half of them when you factor in interest and financial planner fees etc.
     
  9. NickM

    NickM Co-founder Staff Member

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    Matt, i do believe some are returning an income now but take on board Rod's comment that the investment must stack up first.
    I like to exhaust all other options first, ie prepayment of interest in IPs and possibly consider a protected share/ managed fund product. Better chance of a return at the end but the tax deduction is not as attractive as an agri bus product.

    Steve does advocate that if you do invest in GSthrn or other agri that you have to ensure that you use that tax refund to work for you so in the worse case scenario of the investment being worthless at the end of the term, you have at least recouped your initial outlay with the returns achieved from the tax refund.
    In very simple terms
    Eg Initial Inv $100K
    tax refund $40K - invested at 10%pa x 10yrs compunded = approx $94300
    Nickm
     
  10. DaveA

    DaveA Well-Known Member

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    Except for the CGT bill at the end.

    You would have a (54k/2) $27k cgt bill at the end. Yes time value of money and may work if your loking to delay your tax until retirement (that is your 50+). At 40% tax rate (same as above) you still have to pay $15k in 10 years (which in real terms is 11k using inflation at 3%) in tax instead of paying $40k in tax today...

    But yes there is an arguement that having 40k in your hands for 10 years might be worth the cgt bill inreplacement for opportunity cost...
     
  11. reidy75

    reidy75 Member

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    You need to look at a lot more than the initial tax deduction.

    As already stated, the investment return is paramount. No good spending $100k to save $40k tax if you don't get something worthwhile back on that $100k. Couple of tree schemes that finished in 2004 and 2005 worked out at basically term deposit interest rates when they finished (5% return) and that is after the companies tipped money back into them to prevent them being a disaster -the true return achieved was less than this.

    Need to watch ongoing costs. Most tree schemes are reasonable, but some of the grape schemes I've seen have high ongoing costs. So putting $100k in when you have a big gain and lots of cash might be okay, but if you have to put in another $20k the next year, and the year after that, do you have it?

    Long term plan - yes, you get a write-off now, but assuming you pick a good scheme and it does make money for, that comes into your tax return in say 8-12 years time (normally) as income, not capital gain. So no discount. What is your tax position looking like at that time? You might be facing higher tax rates.

    Definitely an area to be do lots of calculations and be wary of.
     
  12. Redwing

    Redwing Well-Known Member

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    Is this agrischeme affected by the Budget changes (i.e Salary Sacrificing) at all, from memory Steve talked about the Salary Sacrificing Benefits as well?