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Need help with how to retain PPOR as IP, and buy new PPOR

Discussion in 'Real Estate' started by pthm, 14th Jun, 2006.

  1. pthm

    pthm Well-Known Member

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    Friends own a PPOR with very little mortgage left on it. They want to buy a larger property for their PPOR, and retain their current PPOR as an IP. How should they structure their mortgage/finance to make it tax effective. Would appreciate your view on this. Thanks.
     
  2. Jacque

    Jacque Team InvestEd

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    Hi PTHM

    Do they have a good broker or lender who can assist them with structure? If not, then I would definitely be recommending they get onto someone who can answer specific questions. Depending on where they live, I'm sure we may be able to help out with some recommendations, if you wish.

    As far as transferring from one PPOR to another, the good news is that they can rent out their current PPOR for up to six years before incurring any capital gains tax.
     
  3. pthm

    pthm Well-Known Member

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    Hi Jacque

    They live in Sydney (north Ryde in fact). They came from South Africa, now settled in Sydney. They sold their house in SA and bought their first home in Sydney (a new 3 bed villa unit in a small block) a few years ago and managed to get the mortgage down very quickly. They have a young family, and wanted a house with yard for the kids. They don't have a mortgage broker - but wanted to get some broad ideas about the tax consequences and how to structure their debt before going to a mortgage broker. It would be good if you can give some leading names of mortgage broker.

    If they buy another house and claim it as their PPOR, then how can they also have their current PPOR for up to 6 years without incurring CGT? Does this mean they have sell the current PPOR within 6 years?

    The thing is that they don't have much debt on the current PPOR, so if they convert it into an IP then they can't negatively geared for tax reasons. Could they set up a family trust and sell the current PPOR into the trust (paying the stamp duty on transfer - unavoidable), borrow money from the bank to buy the units in the trust (HDT here), purchase another property as their new PPOR? Hope this make sense.
     
  4. Rolf Latham

    Rolf Latham Well-Known Member

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    Hiya PTH

    One soln is to sell the PPOR to a trust, and thence re gear in a tax effective way.

    However without knowing more details, such as taxable income, future income potential and tax liabilities its hard to put a finger on it

    ta
    rolf
     
  5. Jacque

    Jacque Team InvestEd

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    Wouldn't this incur stamp duty, though, Rolf?
     
  6. NickM

    NickM Co-founder Staff Member

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    No they will not have to sell the current PPOR within 6 yrs. you can only claim 1 PPOR, they can only claim 1 exemption.
    The last part of your email is spot on. they need to do the numbers. Generally if the stamp duty can be recouped in after tax savings in 12-18 mths it will probably be worthwhile considering.

    Cheers
    nickm
     
  7. pthm

    pthm Well-Known Member

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    Thanks, Nick, for your reply. We will explain to them in general terms what a possible solution will be (trust structure) and consequences are (stamp duty), and then send them to see a mortgage broker (Jacque has recommended two) and to see you regarding the trust and tax bits.