Stand-Alone Dwellings

Where the new dwelling to be purchased is a stand alone dwelling (for example a house/land package where construction has commenced or been completed) the purchase may be approved under this category providing:

* the developer has constructed a similar dwelling with overlapping construction dates;

* the similar dwelling is being sold, or has been sold for a similar consideration;

* the similar dwelling is in a proximal location; and

* the similar dwelling has been, or is to be, purchased by an Australian or other eligible person.

If a similar dwelling does not exist, foreign investment approval is not available under this category.

A property purchased under this category may be rented out, sold to Australian interests or other eligible purchasers, or retained for the foreign investor's own use. Once the property has been purchased, it is second-hand real estate and is subject to the restrictions applying to that category.

Second–Hand Real Estate

Acquisitions of residential real estate that has been previously owned or occupied, that is second-hand houses, flats or units, are not normally approved except for the following two categories:

1. Foreign nationals temporarily resident in Australia, holding a current temporary resident visa which permits continuous residence in Australia for a further period of more than 12 months from the time of application. The dwelling must be used as their principal place of residence1 and not for rental purposes, and must be sold immediately when their visa expires, they no longer reside in the property or when they cease to reside in Australia.

* Persons who hold visitor or bridging visas are not eligible for approval under this category.

* This category includes students 18 years of age and over studying courses of more than twelve months duration at recognized tertiary institutions.

o A general limit of $300,000 applies to the value of properties acquired by these students.

2. Foreign companies with a substantial Australian business, buying for named senior executives continuously resident in Australia for periods longer than 12 months, provided the dwelling is sold when no longer required for this purpose. Whether a company is eligible, and the number of properties it may acquire under this category, will depend upon the scope of the foreign company's operations and assets in Australia.

* Unless there are special circumstances, foreign companies normally will not be permitted to buy more than two dwellings under this category.

Foreign companies would not be eligible under this category where the property would represent a significant proportion of its Australian assets.

Business or Hobby? Answer Has Implications for Deductions

FS-2007-18, April 2007

The Internal Revenue Service reminds taxpayers to follow appropriate guidelines when determining whether an activity is a business or a hobby, an activity not engaged in for profit.

In order to educate taxpayers regarding their filing obligations, this fact sheet, the eleventh in a series, explains the rules for determining if an activity qualifies as a business and what limitations apply if the activity is not a business. Incorrect deduction of hobby expenses account for a portion of the overstated adjustments, deductions, exemptions and credits that add up to $30 billion per year in unpaid taxes, according to IRS estimates.

In general, taxpayers may deduct ordinary and necessary expenses for conducting a trade or business. An ordinary expense is an expense that is common and accepted in the taxpayer’s trade or business. A necessary expense is one that is appropriate for the business. Generally, an activity qualifies as a business if it is carried on with the reasonable expectation of earning a profit.

In order to make this determination, taxpayers should consider the following factors:

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Does the time and effort put into the activity indicate an intention to make a profit?

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Does the taxpayer depend on income from the activity?

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If there are losses, are they due to circumstances beyond the taxpayer’s control or did they occur in the start-up phase of the business?

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Has the taxpayer changed methods of operation to improve profitability?

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Does the taxpayer or his/her advisors have the knowledge needed to carry on the activity as a successful business?

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Has the taxpayer made a profit in similar activities in the past?

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Does the activity make a profit in some years?

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Can the taxpayer expect to make a profit in the future from the appreciation of assets used in the activity?

The IRS presumes that an activity is carried on for profit if it makes a profit during at least three of the last five tax years, including the current year — at least two of the last seven years for activities that consist primarily of breeding, showing, training or racing horses.

If an activity is not for profit, losses from that activity may not be used to offset other income. An activity produces a loss when related expenses exceed income. The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. It does not apply to corporations other than S corporations.

Deductions for hobby activities are claimed as itemized deductions on Schedule A (Form 1040). These deductions must be taken in the following order and only to the extent stated in each of three categories:

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Deductions that a taxpayer may take for personal as well as business activities, such as home mortgage interest and taxes, may be taken in full.

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Deductions that don’t result in an adjustment to basis, such as advertising, insurance premiums and wages, may be taken next, to the extent gross income for the activity is more than the deductions from the first category.

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Business deductions that reduce the basis of property, such as depreciation and amortization, are taken last, but only to the extent gross income for the activity is more than the deductions taken in the first two categories.

Are broker's funds commingled with trust funds?

Correct Procedure:

Funds belonging to a broker should not be commingled with trust funds. Common examples of commingling are:

* personal or company funds deposited into the trust fund bank account;
* trust funds deposited into the general or personal bank account; and
* funds collected on real property wholly owned by the broker handled through the trust account.

A broker, however, is allowed to maintain up to $200 of personal funds in a trust account to cover checking account service fees and other bank charges.

Commissions, fees, other income earned by a broker, and funds belonging in part to the broker's principal and in part to the broker when it is not reasonably practicable to separate such funds, must be withdrawn from the trust account within 25 days from the date of deposit.

Are trust funds deposited in a timely manner?

Correct Procedure:

Unless otherwise specified in writing by the beneficiary of the funds, a broker is required to do one of the following three things with trust funds no later than three business days following receipt of the funds by the broker or the broker's salesperson:

1. Deposit the funds into a neutral escrow depository.

2. Place funds accepted on behalf of the owner into the hands of the owner of the funds.

3. Deposit the funds into a trust fund bank account maintained by the broker.

When broker is handling escrow funds:

A real estate broker who is not licensed under the Escrow Law (Section 17000 et seq. of the Financial Code), when acting in the capacity of an escrow holder in a real estate transaction in which the broker is performing acts for which a real estate license is required, shall place all funds accepted on behalf of another into one of the three places listed above not later than the next business day following receipt of the funds by the broker or the broker's salesperson.

Are the separate transaction records complete and accurate?

Correct Procedure:

Brokers must maintain a Separate Record for Each Beneficiary or Transaction (for example, DRE Form RE 4523). This record accounts for the funds received from, or for the account of, each beneficiary or each transaction and deposited to the trust fund bank account. These records are necessary for the broker to ascertain the total owed to each of the beneficiaries. The record should show in chronological sequence the following:

1. Date of deposit.

2. Amount of deposit.

3. Date of each related disbursement.

4. Check number of each related disbursement.

5. Amount of each related disbursement.

6. If applicable, dates and amounts of interest earned and credited to the account.

7. Balance after posting transactions on any date.

Is the bank account used for trust fund handling an interest-bearing account?

Correct Procedure:

Trust funds may, at the request of the owner of the funds, be placed into an interest-bearing account at a bank or savings and loan association if the following requirements are met:

1. The account is in the name of the broker as trustee for the specified beneficiary or principal of a transaction or series of transactions.

2. All of the funds in the account are covered by insurance provided by an agency of the federal government.

3. The funds in the account are kept separate, distinct, and apart from funds belonging to the broker or to any other person for whom the broker holds funds in trust.

4. The broker discloses to the beneficiary of the funds the nature of the account, how interest will be calculated and paid under various circumstances, whether service charges will be paid to the depository and by whom, and the possible penalty for withdrawals.

5. No interest earned on the funds shall inure directly or indirectly to the benefit of the broker nor to any person licensed to the broker.

6. In an executor sale, lease, or loan transaction in which the broker accepts funds in trust to be applied to the purchase, lease, or loan, the parties to the contract shall have specified in the contract or by collateral written agreement the person to whom interest earned on the funds is to be paid or credited.

It should be noted that this would require the broker to maintain a separate bank account for each beneficiary who wishes to earn interest.