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Rent out PPOR but still declare it as PPOR

Discussion in 'Real Estate' started by RU, 22nd Feb, 2011.

  1. RU

    RU New Member

    Joined:
    22nd Feb, 2011
    Posts:
    1
    Location:
    Melbourne, VIC
    I have a question regarding using my current PPOR as a rental property but claiming it as a PPOR.
    Scenario:
    Property A:
    Lived for 5 years from 2006- 2011.
    Rent it for next 5 years 2011-2016 and sell the property in 2016. Declare Property A as the PPOR for the complete term and Pay no CGT.
    Property B:
    I will Purchase Property B in 2011. I move in to Property B but do not nominate it as PPOR till 2016 (Property A remains the PPOR). If I choose to sell in 10 years time, I will be liable for CGT for the first 5 years.

    My Questions are:
    1. Since Property B is not the PPOR can it be claimed as an IP? i.e. Can I claim the interest payments and maintenance costs for Property B till it is not PPOR.

    2. No deductions will apply to income from property A (rented from 2006 – 2011)? i.e. will it be fully taxable?

    The reason I am contemplating the above is because I only owe 60K on Property A which is valued at 450-500k.

    What would be the most tax effective way of buying a new property to live in with an existing property with a minimal mortgage? I have 2 years before I must move into a bigger home. We are a DINK Couple at the moment but that will change in 2 years time. If I sell the current PPOR, and buy a separate investment in addition to a new PPOR, the total cost including selling and buying costs will be 50K aprox. which seems pointless.

    I have also read somewhere that if I sell my property which is in my name only, to my spouse and she has to take out a loan to pay me then we wont be charged any stamp duty and she can then rent that property and claim the interest on the amount borrowed.
    http://www.austlii.edu.au/au/legis/vic/consol_act/da200093/s43.html

    If this is true then what are the other costs involved in the transaction besides stamp duty?

    Thanks in Advance!!
     
    Last edited by a moderator: 22nd Feb, 2011
  2. jrc77

    jrc77 Well-Known Member

    Joined:
    26th May, 2008
    Posts:
    147
    No. You can claim interest expenses and maintenance on a property if you derive an income from it. This is completely separate from claiming the CGT exemption for a PPOR.

    In the first bit you said you lived in property A from 2006-2011. If this is the case, then there are no deductions for expenses during this time as you did not derive an income from it - ie. you lived there.

    The most tax efficient manner *would* have been to setup the loan on property A for the full value of the property and to have an offset account. Put all extra repayments into the offset account. When you want to buy property B to live in simply transfer money out of offset account to use to buy new place. Then all interest on the loan for property A would be deductable.

    Unfortunately if you didn't set up the loans like this originally you can't easily rejuggle it without changing the purpose of the funds.

    Might be possible but would suggest being careful of the general anti tax avoidance clauses. Seek professional advice.

    Legal fees, refinancing fees, your time.

    Regards,

    Jason