Accountants that persuade their clients to purchase dud real estate so as to receive a sling are a scourge on the real estate industry.
Property developers are offering accountants substantial kickbacks in return for recommending low grade investments to their clients.
House and land packages on the outskirts of metropolitan Melbourne, apartments and units situated in high density sub-divisions are just some examples of appalling real estate investments that are being peddled by unscrupulous accountants.
Yet this type of biased and self-serving behaviour goes unpunished. Providing real estate services without holding an estate agents licence is in contravention of the estate agent’s act. However prosecutions have rarely occurred.
Of course the greater majority of accountants don’t indulge in this type of practice. In all industries there will always be a small percentage of participants that find the lure of easy money too great.
Real estate agents are regularly on the receiving end of fines for underquoting.
However, underquoting has never ruined the financial future of a young person or been responsible for an older person’s retirement dreams to go down the gurgler.
The same can’t be said for accountants that are prepared to suck their unsuspecting clients in to purchasing low grade investments for their own personal gain.
These opportunistic accountants take a sudden interest in real estate when markets are booming. However when price growth and buyer sentiment are subdued their interest in real estate suddenly disappears.
These types of scams are often orchestrated through what is purported to be property investment seminars. Unfortunately for unsuspecting buyers the only source of supply is through the property developer associated with the accountant.
You might think I am unfairly targeting accountants. This practice does extend to other professionals involved in the financial sector.
The fact is most people listen and take the advice of their accountant. This is where the danger lies.
Perhaps it is their higher level of education or their status as a prime advisor on taxation matters. An assumption of credibility or unquestioned trust rarely leads to a satisfactory outcome.
Accountants can be and should be an important advisor to property investors. Property investors need to be aware of the taxation implications of their property purchase.
Every property investor should have a competent accountant as part of their team.
The following are my top half a dozen tips for property investors in relation to taxation.
1.Never purchase residential real estate as an investment purely for taxation benefits. Residential real estate should be purchased for its ability to appreciate quickly. Other benefits such as deductable depreciation are insignificant compared to potential capital growth.
2.Current tax law is very generous to property investors. Especially in areas of negative gearing and capital gains tax. So don’t look a gift horse in the mouth. To put it bluntly don’t cheat on your tax return e.g. making up deductions or inflate deductions.
3.Due diligence should be carried out carefully when deciding what entity to use for your investment property e.g. personal name, trust, self-managed super fund etc. Having to change the holding entity down the track will prove very expensive in regards to capital gains tax and stamp duty. If your accountant recommends another entity other than personal names analyse the implications carefully. All other entities will result in higher accounting fees and greater compliance responsibilities. This is especially the case with self-managed super funds.
4.If your accountant recommends you engage in dodgy practices get rid of him. What he doesn’t tell you is that despite him advising the dodgy strategy, tax law stipulates that you, the tax payer are in the gun, not him. Low quality accountants need to lure clients in with the promise of paying little tax.
5.If your accountant tries to lure you into purchasing an investment get rid of him. An accountant’s role is to give you tax and general business advice, not flog investments.
6.Property investors should make the effort to understand basic fundamentals of taxation that is related to their investment property. This will enhance the chances of paying no more than your fair share of tax. Also, understanding fundamentals will make it more likely that bad advice will be identified.
If your accountant doesn’t live up to what I have described above move on and find someone who does.
When he asks you; “why are you leaving”? Your reply should be “Hey bean counter you didn’t focus on your numbers”.Return to the main news page