Hi
My girlfriend and I have just bought a house $500K she was left a flat worth $340K we want to rent it out to help pay off our new house mortgage and she really doesnt want to sell it as it was her parents etc.. On the extra income that will be coming in from the flat will their be tax implications ? If so how can we avoid them ?
Cheers
The tax implications will be that you have to pay tax on the rental income if it is more than what the property costs you to maintain.
I do not consider this as a problem as the more tax you pay, the more you earn. I wish I received a million dollar tax bill each year as it would mean I am earning at least 2 million in my hand.
A good accountant will be able to help you minimise your tax liabilities and you can invest in various things to help you with this.
Robert Bou-Hamdan
Mortgage AdviserI should have mentioned that we want to shift from the flat which is paid off to the house which is now under a mortagage.
You will still pay tax on the rent from the unit and lose deductibility on the house mortgage. What else do you want to know?
Robert Bou-Hamdan
Mortgage AdviserYou had better get some advice. It may be possible to sell the unit CGT free. You could then use the proceeds to pay down the loan on your new main residence, saving interest. Then you could borrow to buy further investments with tax benefits.
You have to weigh up the costs of selling with the costs in extra tax etc of owning the flat as is.
If she really wants to keep, you could do both sell and keep by selling it to a trust you control.
Talk to a tax advisor.
Terryw
Discover Home Loans
Mortgage Broker
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
I think I would prefer paying the minimal ongoing tax expense as compared to the large upfront stamp duty expense by selling to myself. Using the property to make additional investments would probably be more beneficial and the rental income would reduce the non-deductible debt fairly quickly before ever being required to pay the tax.
I say keep them both and use them for more investments if you can afford the repayments.
Robert Bou-Hamdan
Mortgage AdviserCouldnt I borrow money against the flat and put it into the house I just purchased and rent the flat out and the interest from the loan on the flat becomes a deduction ?
No. It is not which property funds are secured by that make them deductible. It comes down to the purpose of the funds. If it is used for investment, it is deductible, if not, no deductions.
Robert Bou-Hamdan
Mortgage Adviser
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