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structure set up when buying property with children

Discussion in 'Real Estate' started by flexibet, 1st May, 2008.

  1. flexibet

    flexibet New Member

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    Hi Everyone,

    I am new to this forum and would appreciate input from anyone who has an idea. I am presently investigating the possibility of purchasing a house with my wife and my daughter who is married. It is a way of assisiting my daughter and her husband into home ownership. My daughter and husband would live in the property and we would split the loan 50/50 . Does anyone have any suggestions as to how to structure the the investment and possibly allowing my wife and myself to claim tax deductions as it would be an investment from our point of view whilst still allowing for my daughter and her husband to view the purchase as their place of residence and so not attract capital gain on their share of the profits if and when the property was sold later on. We are initially looking at a 5 year plan and review the situation then. Thanks
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Would you be charging them rent ?

    If not, I would think that the ATO would take a dim view of the arrangement.

    Are you looking at asking a bank for a loan for your 50% ownership in a property ? I'm not sure you'll find any lenders willing to take on that risk - since theirs will not be the only mortgage.

    I also don't know how CGT exemption would work if they only own a 50% interest in the property?

    Need to put my thinking hat on to see if I can come up with any alternative suggestions.
     
  3. DaveA

    DaveA Well-Known Member

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    Joint loan with all 4 names on the title... majorly effects all 4 of your future assessability...

    in theory, they would need to pay their mortgage and also half of the market rent to you, so their cost of ownership will not be just 50% of interest costs.... So if you say interest rates are 9% and market yield is 5%. Your daughters total costs will be half of each (total 6%), so this would be 18k on a 300k house (roughly 346 per week), where renting would of cost 15k per year ($288 per week) and compared to 27k for full ownership ($520 per week), so you can see there are advantages for your daughter...

    potentially a unit trust may be a different structure (or disc trust) however you will loose the PPOR exemption so its probably not worth while (as you said minimise tax).... however it will give you a a definate tax deduction for your 50%. If it was held in individual names then you would really need to prove you recieved 50% of the market rent....

    One suggestion from out of the box, could you structure it like the equity loan released last year. Ie your daughter buys it and pays 80% of the price and takes the loan out for that amount (21.6k holding costs, 415 per week) and you take on 20% ownership and recieve 40% of the capital gain when its made (but nothing to help cover yoru interest payments), not sure if youd get your interest tax deductions however this is really an out of the box suggestion and you would need legal, accounting and specialist advise before you went down this path..

    anyway just something to think about...
     
  4. DaveA

    DaveA Well-Known Member

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    one more though....

    if you do go through with this (and with appropriate advice) id would say you should look at your daughter putting an call option over your portion... this way for say a fee of 5% (so 7.5k on a $300k property) and probably $3-4k in legal fees which will give your daughter a chance to purchase the property at an agreed price for them.

    this depends on how generous you want to be as you would be sacrificing your future gains to help your daughter out... so it depends if your trying to make an investment decision yourself or just purely trying to help them get ahead in life....

    however good advice is the best key here for maximising the best decision....