Financial, tax and legal advice is complex and we recommend that all Assquire investors show this answer to their adviser.
Step 1 is to apply. The first stage is free and will allow you to know whether you are likely to be accepted or not as suitable to be matched with an MA home buyer. You will need 25% equity as a minimum in your property (use current independent market value as a guide but the eligibility is actually based on the Agreed Value you negotiate with a future MA buyer), to be conditionally suitable and you will need to furnish HRL with certain information (including statements of assets and liabilities) as part of your application. The 25% alters to 20% for Assquire Family and to 45% for self managed superannuation funds (SMSF’s).
Step 2 is to confirm with your mortgage broker that you have the best rates and terms on any finance you have as an Assquire investor, and that your loans either comply with Assquire criteria, or that your affairs can (with the help of your financial adviser or accountant or both) be brought within the Assquire acceptance criteria.
Step 3 is to confirm your tax advice, as Assquire produces higher yields and may affect your lending and tax strategies. We want you to get the best possible after tax returns from your investment, and be aware of the capital gains tax consequences (see below) so that you choose the best property to Assquire, but we cannot provide you with that advice ourselves.
In preparing for step 3, you can provide your tax accountant or tax lawyer with a copy of the below example Capital Gains Tax calculation for a $500,000 sample Agreed Value home.
EXAMPLE SUMMARY OF CALCULATIONS PROPOSED FOR CAPITAL GAINS TAX
Please note: This example is for a landlord with a current rental property that they have owned for at least 12 months who wants to see an example of SWITCHING their current rental property after 12 months of ownership to the Assquire system, by now re-selling and leasing it to a Mortgage Alternative home buyer.
If you are an investor looking to ASSQUIRE INVEST – i.e. purchase a home conventionally today and then immediately re-sell and lease the property to a Mortgage Alternative home buyer at the earliest possible opportunity, please see the previous FAQ titled: “Do you have any example CGT calculations for new Assquire system investors purchasing a property today to resell and lease to an MA buyer?”
ASSQUIRE SWITCHING BY A CURRENT LANDLORD AFTER 12 MONTHS OF OWNERSHIP & CONVENTIONAL RENTING – RESALE AND LEASE TO AN MA BUYER AT THE EARLIEST OPPORTUNITY:
ASSUMES A $500,000 HOME (AND PURCHASE BY INDIVIDUAL ON $100,000 PA OTHER TAXABLE INCOME) HELD FOR >12 MONTHS AND NOW TO BE RESOLD AND
LEASED TO AN MA BUYER
THIS EXAMPLE ASSUMES ZERO CHANGE IN MARKET VALUE UP OR DOWN SINCE THE INVESTOR’S ORIGINAL PURCHASE DATE BUT ONE YEAR OF CLAIMED BUILDING DEPRECIATION ALLOWANCES
AGREED VALUE WITH MA BUYER ALSO $500,000 INDEXED TO A TEN YEAR PURCHASE PRICE, WITH TAKE UP AND SETTLEMENT BY THE MA BUYER AFTER TEN YEARS FROM DATE OF SALE
This example will be to a non-first home buyer and will assume a higher actual capital growth rate over the next ten years of 4.5% to showcase the UPLIFT FACTOR that applies only with non-first home buyers as MA buyers.
Assumes 4.5% pa annual property price growth; pre-agreed sale price is Agreed Value of $500,000 indexed by 1.5% pa for 10 years = $580,270, as actual average capital growth will only be established by an independent valuation after the nine and a half year mark.
Assumes Investor borrowing at 75% + any CGT payable in year 2 (subject to a cap).
- YEAR ONE GAIN:
- Pre-agreed minimum contract price ($580,270) – uplift factor as yet unknown
- Deduct reduced cost base (before reduction for future building depreciation deductions, as not yet deducted at time of contract for sale) – allows for one year of past building depreciation allowances at date of sale to MA buyer – say $7,500 on 60% of Agreed Value (the assumed building component of the combined house + land price)
- Deduct share of HRL commission paid by investor in first 24 months from Assquire rent ($4,515)
- Deduct HRL commission at 2.75% + GST on pre-agreed minimum purchase price deducted from initial deposit paid by MA Buyer to investor ($13,038)
- Deduct: HRL settlement commission of 4.5% +GST (most of which is a licence fee paid away by HRL to IP licensor) payable by the investor on sale to MA buyer, but paid by the investor only at the end of the ten years, or on Take Early or seller default ($28,723)
- Example: $500,000 home = capital gain of $15,574 (50% included in assessable income if CGT general discount applies)
|Sale of assquired property
|HRL commission ex agent’s trust account
|HRL settlement commission
|Buyers transfer fees (Stamp duty) on price incl uplift reimbursed year 10
|Less Cost Base (incl duty & legals)
|Profit on sale of assquired property
||Year 1 capital Loss c/f
- CGT general discount (50% as at 20 February 2019) applies to reduce taxable capital gain to $11,537
- Tax at 39% income tax rate = $4,499 (it could be more than this at different taxpayer taxable incomes or if held for longer periods prior to switching to Assquire – e.g. because of higher past claims for building depreciation allowances)
- Our financial model assumes investor borrows this CGT sum, but accelerated cash flow of average $183 per week over ten years ($73 pw in year 1) would fund this within the first fifteen months, if the investor did not borrow the CGT). Seek financial and tax advice on your own particular property and financial circumstances.
SETTLEMENT UPLIFT – NON-FIRST HOME BUYER ONLY:
- Uplift at assumed 4.5% pa compound growth in property price for ten years: $43,220 – uplift only applies from 4.5% pa growth or higher.
- HRL Commission payable at settlement of 4.75% +GST on uplift (being 2.75% + 2.0%) – not factored into original CGT calculation in year 2 ($2,258, being 5,225% of $43,220 uplift) – uplift only applies from 4.5% pa growth
- HRL Settlement commission of 2% +GST on the pre-agreed price: $12,766
EXAMPLE END CASH FLOW IN YEAR 11:
Final Sale price 623,490 (being pre-agreed 580,270 + uplift payment of $43,220)
Less: Initial & Balance Deposit increments paid
to investor during the MA occupancy period 58,027
Less: Settlement Commissions noted above to HRL 12,766
(being 2.2% of $580,270)
Note: $28,723 was claimed in year 1 CGT as the actual capital growth rate was not known at that time.
Less: Up-front & Settlement Commissions noted
above as payable to HRL on Uplift Payment (part
of final purchase price as now known) 2,258
CGT payable to ATO after settlement on Uplift and building depreciation
recapture, less additional HRL commission payable by investor on uplift
payment received by investor from MA buyer Seek advice – there are limitations on amended assessment periods.
AMOUNT AVAILABLE TO REPAY BORROWINGS 550,439 A
Less: Repayment of 75% borrowing on purchase price
Plus incidental costs of purchase (75% of $500,000) 350,000
Less: Repayment of borrowing to pay CGT in year 1 4,499
SUBTOTAL 354,499 B
CASH FLOW TO INVESTOR IN YEAR 10 AFTER CGT
AND BORROWINGS AT 70% REPAID (A-B) $195,940
In the application process, once you have been conditionally credit assessed, we also provide you with our Product Specification which includes all our fee disclosures regarding commission.
Note: Should the Assquire investor default on its obligations, the contracts provide for a Notified Recovery Amount to be recoverable bu the MA buyer, behind any secured position of the Assquire investor’s lender.
Your financial adviser and/or lawyer will be able to see worked examples of the Notified Recovery Amounts payable by you (or your Trustee in Bankruptcy if you default) before you sign any sale and lease contracts with an MA Buyer. So this would be good to provide to your legal and/or financial adviser, along with the Product Specification which sets out what the product is and how it works, together with a summary of fees and charges.
A useful chart with suggestions on how to navigate this process with the best independent advice can be found here.
This is an example only current as at 20 February 2019 and should be used as a guide only.
The example assumes a purchase by an Assquire investor of a residential property in Queensland and immediate on-sale to a Mortgage Alternative Buyer, hence the cost base of $518,420 inclusive of investor stamp duty and $1,000 of legal expenses.
Clearly, everyone’s circumstances will be different, with different cost bases, purchase dates, and possibly Assquiring of their principal place of residence (often CGT exempt). Hence the need for independent professional tax advice.
Product pricing is subject to change without notice and may affect calculations above.
Individual investment results may vary because of interest rates, changes in taxation and other laws or regulations, whether an investor fixes their interest rates on their borrowing, whether an MA buyer settles earlier or defaults in their repayment and general economic circumstances.
Assquire investment terms may not be appropriate for an investor’s individual personal circumstances and all investors should seek independent professional legal, tax and financial advice.
Note for advisers: We have an investor comparison model – just make contact with us and we may be able to provide you with some worked examples. We will not release the financial model as we are not licensed to provide personal financial advice and it is part of our intellectual property, but we may be able to assist you as a financial adviser with certain factual information in a general (non-specific) context, to get more comfortable in providing your own independent advice to your clients on their own specific personal circumstances. Only general factual information will be provided, however.