Active verses passive income from an income tax perspective

(31-12-2013, 11:06 PM)opmi Wrote: Can rent out without tenancy agreement.
But income still need to be declared to IRAS.

With black & white (TA & Stamp duty), when disagreements or serious disputes crop out, at least both parties have something to fall back to negotiate or mediate.
No one should promise to be an angel.
And IRAS is only interested how much the property is rented out.
The onus is always on the landlord/owner as far as GOV is concerned.
In fact, some people believe how a TA is structured is quite important a part for the success or failure of the tenant/landlord relationship.

Any way, the TA and yes the "Letter of Intent" from the tenant is where both parties comes to an agreement of contract. If many things are not "clear" at this stage, there will be a lot of problems for both parties, later. imho.

(01-01-2014, 06:28 AM)pianist Wrote: Ok thanks. Without stamped tenancy document, how is iras gg to know if U have rental income?

tip off by ex-wife/ex-GF/ex-biz partners/ex-tenants/ex-employees/neighbours

(01-01-2014, 06:28 AM)pianist Wrote: Ok thanks. Without stamped tenancy document, how is iras gg to know if U have rental income?

The onus is for landlord to declare the rental income p/a to IRAS, one way or another. So declare by stamp duty TA is better. And i think IRAS stated somewhere the tenant has to pay for the stamp duty too. So why not? See why IRAS bother to state who should pay the Stamp Duty.

(01-01-2014, 09:25 AM)gautam Wrote:

(31-12-2013, 03:44 PM)specuvestor Wrote: I think the point that OPMI brought up is very important... though we are Outside Passive Minority Investors, it actually takes a lot of effort to generate passive returns.

To me the difference between active and passive return is that the latter is scalable. The former requires your presence but both requires effort. Being a CEO of the company earning $5m is active return, but you can only be CEO of one company, but you can be shareholder of multiple businesses employing people smarter than you to do the work.

That's why most of the time I advise people to invest in index funds if they don't want to make an effort. Active investing is not for everyone.

Hi Specuvestor and OPMI,

you do have a point. personally, I now derive a larger and larger part of my income through dividends which are not taxable, or rather taxed at the company level before going into my pocket.

I do agree what strictly speaking, that passive incomes require some effort. One can hardly get passives with zero effort. Even seed money involves effort to build up.

From personal experience, in deriving my passives, the initial effort (I agree effort must be expended), is in doing the appropiate research to be completely or at least adequately satisfies that the company in question satisfies one's criteria. That can take anywhere from one month to a few months. And sometimes, a seemingly good company misses me simply because I've not done adequate homework at the time when the price is attractive. It happens sometimes.

And it might take a few weeks to a few months to achieve the initial investment amount.

But eventually a few companies will make it and my style is to buy deeply and hold for long and let compoundation do the trick. I have an at least decade long view on the companies I buy into. I look into the past decade record. I look at the managing directors and chairman face and talk to them if possible. AGM's are a good place to speak to these key people. Forget about the buffets. The buffet time is the best time to talk, not to eat. I prefer to ask them about their passion about running their business. How the business can survive from one generation to the next. Companies are run by people. They must be people you can trust. They are the ones taking care of your money. This is a important consideration.

Thus, only the selection part and the deployment of funds to purchase the stock takes active effort. Once that active part is done, to me, its all pretty non-active for the next decade perhaps.


gautam

hi gautam

What causes that shift towards passive income? age? family?

I think younger people should hoot (take risk) more. Mistakes likely to be mitigated by rising income or over time. Besides, job income unlikely to provide the first bucket of gold. Need that capital to form a base for passive income.

For passive income, many ways to get to the objective.

For some, brain work is preferred over sweat so financial instruments is the choice. Some people are more hand-on, so they set up part-time businesses (partnerships, online shops, weekend kiosks etc) or do property investment. Same as inv style, find one that suits your personality and strengths.

Just some thots on the first day on 2014.

Hi opmi,

well, I have been putting in 12-14hour days for the first 10 years of my life after graduating. family is one. age not really, as I am in my thirties. I made pot of gold in business, properties and other non-equity investment years ago. In fact, share investment itself is already taking a risk as I am not account trained by profession. But that risk itself is mitigated by knowledge. Somehow, thus far, I seemed to hit a correct chord in my equity investment and this is slowly gaining a significant footage in my overall wealth. When I started off, I never imagine this to be a significant part as this was part of tikam money to begin with nearly 10years ago. Or maybe, so far, the big bear is waiting to maul me into pieces. I do not know. But I keep my fingers cross. I just continue doing what I am comfortable with. And spending more time on my family and children is a major part of it.

yes, some people, including my dad have advised me to do other businesses or expand my own. But I realised the power of passive compoundation taking precedence over all these pursuits and hence my reluctance to get more white hairs doing more businesses and taking more roles.

gautam

if you are always in the Market all the time, you can't escape the Big to Biggest Bear?
The only question is, are you ready or prepare adequately for the Bear pawing at you?
If you are, i think surely after the Sunset, there is a Sunrise. imo

(01-01-2014, 11:04 AM)gautam Wrote: Hi opmi,

well, I have been putting in 12-14hour days for the first 10 years of my life after graduating. family is one. age not really, as I am in my thirties. I made pot of gold in business, properties and other non-equity investment years ago. In fact, share investment itself is already taking a risk as I am not account trained by profession. But that risk itself is mitigated by knowledge. Somehow, thus far, I seemed to hit a correct chord in my equity investment and this is slowly gaining a significant footage in my overall wealth. When I started off, I never imagine this to be a significant part as this was part of tikam money to begin with nearly 10years ago. Or maybe, so far, the big bear is waiting to maul me into pieces. I do not know. But I keep my fingers cross. I just continue doing what I am comfortable with. And spending more time on my family and children is a major part of it.

yes, some people, including my dad have advised me to do other businesses or expand my own. But I realised the power of passive compoundation taking precedence over all these pursuits and hence my reluctance to get more white hairs doing more businesses and taking more roles.

gautam

Gautam, thanks for sharing.

Someone said "Young man got time/energy, but no money. Old man got money, but no time/energy".

I think best to follow the middle path (some time/energy + some money)

strange... I have the mindset of the middle path too.
But, mine is a lot of time/energy + a lot of money.

Just for laugh ... Happy New Year everybody!


A Life not Reflected is a Life not Worth Living.

(01-01-2014, 11:59 AM)Temperament Wrote: if you are always in the Market all the time, you can't escape the Big to Biggest Bear?
The only question is, are you ready or prepare adequately for the Bear pawing at you?
If you are, i think surely after the Sunset, there is a Sunrise. imo

出來行 遲早要還



Quitting while ahead is different from quitting.

(31-12-2013, 03:56 PM)opmi Wrote:

(31-12-2013, 03:00 PM)corydorus Wrote: Passive income like FD can be a personal calamity. Just asks those savers who lost significant of their deposits. You need to monitor everything you invest imo and control your risk exposure. Passive income to me can be fixed or % amount of expected dividends. Eg. Reits, PS, bonds, treasury.

You mean structured deposits. Not fixed deposits (FD).

Yes. you need to monitor where your money is invested. No one is going
to look after it except yourself. Thats why no real passive income.

Cyprus incidence.
Link

In our context Passive will be relatively less active.