My thread from 2 years ago - Now what to do..? Please help

Oh dear. Taking tax advice from a mortgage broker. His insurance won't cover this.

 

Did you read the 6 month rule at the bottom of the page in the link? What do you think? I think this is what the broker was talking about.. you can claim both properties as your PPOR for the first 6 months providing you meet the criteria listed.

But I think this is only beneficial if you have moved to a new ppor and are planning on selling your existing CGT free (within 6 months after purchasing your new ppor).
Probably no benefit to my scenario, as I am looking to retain the existing PPOR and make it an IP/sit on it for the long term growth.

But then again there is always the disclaimer that you should discuss with your accountant based on your individual circumstances..

 

That only applies if you sell one property.
see s118-140 ITAA97

 

Ok so I'm deciding to buy out the wife's share.. Although I am wondering: as there are now tenants in the house, if I buy out her share and sometime in the next 6 years I decide to sell the property, could I still claim the 6 year rule? Or does my ppor not apply anymore because I 'purchased' my wife's share when we weren't living there!?

 

You would have 2 interest in the property.
1. your 50% from before and
2. your 50% from this recent purhase

You maybe covered for the 1st, but would you live the 2? ie would you live in your wife's share of the property after you purchase it?

Also, where are you going to live once you move out? Only 1 main residence per couple.

 

Tom,
I am not sure why you want to transfer this property into your name. You mentioned if you sell in the future you will be on the higher MTR and as the property will be close to neutrally geared now and presumably positive in the mid term future, why into your name?

The interest on the new loan/equity redraw that is used to purchase or help purchase your new PPOR is not deductible in any circumstances. Interest on the existing and paid down loan of $296k is deductible as that property is now used to generate rental income.

Based on your numbers given previously, I suggest you use different lenders if you are having to go to a 90% LVR overall. It will be very expensive if you use one lender and both properties as security. It will be significantly cheaper to use 2 lenders at 90% each in terms of LMI.

I would get a valuation for the previous property to help establish for potential CGT purposes if and when you sell. Also get a quantity surveyors report to set up a depreciation schedule.

Greg

 

Thanks Greg.

My accountant has now given me this advice and confirmed this strategy is a good one for our goals for the property - confirmed also with the solicitor -
Reason for transfer is to buy out the wifes share including the equity redraw, thereby establishing a higher loan with deductible interest on the total amount. Should be able to get it from 296k to about ~380k.
Any redrawn equity used for the new PPOR would then be paid off with remaining money & any savings required to contribute (eliminating the bad debt).

Have now moved out. A valuation was done prior to moving out.

Ended up going through a broker who shopped for the best/most suitable deal, which ended up being with the same bank as the original home! Yes LMI was a bit expensive..

Yes I understand I will be the higher earner, but as we do not plan on selling it now, we are trying to make it as tax effective as possible as we want to hold on to it for the long term (10?, 20? 30 years..). If the day comes when we can't afford things and absoloutely need to sell it, then hey, I will deal with it then and pay whatever tax is due.

Currently (interest rate ~5%) it will be negatively geared based on rent to mortgage repayments alone.

As the property is ~1970's build, and renovations are not premium quality, do you believe it is still worth a deprec. schedule? In the last 12 months, it has had a new bathroom, back deck and new carport.. nothing too major/expensive.

 

Tom,
I wish you luck as I read what you are saying, you run a risk if you ever get an audit from ATO.
I just cannot see anyway the interest on the new borrowings which you used for your new PPOR is tax deductible or not classified as a scheme.

I don't know your accountant but I have come across many that have little idea of what can be claimed or what should not be claimed in terms of deductions for investors. As to solicitors knowing, there are some that are knowledgeable in this area but I certainly hope they are not giving advice on wealth creation strategies or tax unless they are licenced to do so.

I hear what you say about your broker finding you the best deal but I have also seen too many brokers who just deal with one lender and present a case that this is the best deal going around. It just does not make sense to me that the LMI premium you would have paid by cross securitising and going to 90% overall would give a better outcome than using separate lenders (unless I am incorrectly reading what you have done). I would also suggest that the LMI premium is not deductible either in the manner with what the end funds are used for.

If you want to show me the numbers, I will do a comparison for you.

Not trying to be negative but I have seen too many deals not stack up to scrutiny where clients have relied on so called other professionals. Your desire to build long term wealth is commendable and seeking knowledge on how to do this effectively perhaps is worth more to you in the long term than anything else.

As to a quantity surveyor, even with a pre-1987 property, being able to write off fixtures and fittings over time should be considered. You must have spent at least $20k to do the recent renovations so I would expect the cost of a quantity surveyor report to be well worth the investment.

Good luck with it.
Greg

 

Hi Greg, thanks for the response.

Just to clarify, the loans are with the same bank, but not cross securitised. Seperate LMI applies to both. My MB is also a close friend.

To clarify also, we are NOT trying to claim the interest on the new borrowings as tax deductible.
If I buy out my wife, theoretically she should then recieve money (already drawn out as equity) from the sale of her share of the title, and of course my debt on the IP increases. As we are husband and wife, she can then use that money to pay down our non-deductible debt.
(Note: the deposit used for the new PPOR was not equal to the full amount of equity accessed.)
The above makes sense to me.. or is there something I am missing?

If not, why have you and Terry both suggested (earlier in this thread) to perform a spousal transfer? What would be the benefit?

Thanks! I will look into a QS

 

I can't be bothered looking, but I don't think I suggested a spousal transfer. I may have suggested you consider it. You will need to do the sums and work out it it works on paper and then you would need to get legal advice on setting it up correctly and the implications. Probably a good idea to get a PBR to make sure the ATO will not apply part IVA too.

I've seen 2 cases recently were this was performed incorrectly and none of the interest was deductible.