CGT - Foreign buyers - investment

Discussion in 'Accounting & Tax' started by Needhelp, 16th Oct, 2017.

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  1. Needhelp

    Needhelp New Member

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    Hi,

    Apologies if my terminology is incorrect and thank in advance for any help.

    Background

    I bought my PPOR 8 years ago and have lived there since & I am a Aus citizen. My husband and I also bought an IP 2 years ago.

    My parents have move to Aus from overseas and are now about to live in my PPOR. My husband and I are now moving into the investment property.

    Ideally I wanted to sell my PPOR to my parents for the amount outstanding on the loan ($400K), but as they are not permanent residents they are treated as “foreign buyers” and attract about $80k buyers surcharge + $50k stamp duty.

    Old PPOR 8 yrs Purchase Price ~$600, current value ~$1.1M – Variable loan outstanding $400K

    Investment (last 2 yrs – new PPOR) Purchase Price ~$1.4, current value ~$1.5M – FIXED loan $1M + $300K (3 yrs remaining fixed)

    My main objective is to avoid a huge CGT bill when my parents move out of my old PPOR in about 5-10 years. As we will need to buy another house for them to live in.

    Is a trust a good option to minimise CGT?

    Would I need to pay stamp duty if selling to a trust?

    Can my parents be in the trust as “foreign investors”?

    The best option I’ve come up with so far is parents gift me $400K and I “rent” old PPOR to parents (leaving the $400K in an offset), recognise the revenue at end of each tax year and claim deductions. BUT if I use the $400K to offset the variable (old) PPOR loan I would make a profit, giving me an annual tax bill.

    Can I therefore increase the lending on the old PPOR from current $400K to $1.1M (value), so the old PPOR (can be negatively geared)?

    I think the bank will let me do this (with a fee I’m sure), but is this allowed by ATO?

    Or should I break the $300K fixed loan, pay the break fees and pay this off as this will be our new PPOR

    Help, any suggestions welcome.
     
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Seek legal advice.

    Any transfer to a trust or the parents would result in stamp duty. It may be CGT exempt now if it meets all the requirements, but later it could trigger CGT.

    If you don't charge your parents rent you might be able to use various expenses such as rates and interest etc incurred, even while you were living there, to reduce the CGT when it is eventually sold.

    You might be able to increase the lending secured against this property, but this will not effect the amount of interest claimable.

    If you are going to break the fixed loan on the investment property consider the timing of it - may be better to do it before you move in.
     
  3. Needhelp

    Needhelp New Member

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    Thanks Terry,

    Is it better to break the loan prior to moving in so you can claim the break fees as a deduction in the following years tax return?

    I would assume this is allowable, as the property is no longer an investment, as such we can't claim the interest, but can hopefully claim the break fees.
     
  4. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    What do you base this assumption on? If the interest isn't deductible why would the break costs be?

    This is something you need tax advice on - from your lawyer or tax agent.
     
  5. Needhelp

    Needhelp New Member

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    The assumption was as the fixed loan was used as an investment and the interest was deductible. Now the property is no longer an investment we have to break the loan as we are not using the funds to invest.

    Thanks Terry.
     
  6. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Under s8-1 an expense is only deductible if it was incurred in producing income. If it is no longer rented there is no income associated with the expense....