I suppose I got into this situation as a newbie and in not getting (or looking for) the correct advice. My fiance and I make around have one investment property on which we owe alomst exactly $100k. I estimate it's value at somewhere around $230-$240k.
We have just purchsed a PPoR in the ACT for $400k which we owe $270k on. The balance of $130k plus costs and stamp duty was paid for in cash savings. As fairly conservative investors we felt comfortable with the repayments at 270k but no more than that. We laos fel tthis left us some 'leeway' to either pay down faster or invest in another property or managed fund.
With what I know now, I realsie that I should be maximising the deductible debt. The question is can I do it now or is it too late? The loan on the IP is fixed for another approx 2 and a bit years. Could I still use a product like Comm Bank Veridien to borrow another 75 to 80K (leaving us 20% equity) and then use this cash to pay down the PPoR loan? Because the money has not been spent for investment purposes would I be correct in saying that that portion would NOT be tax deductible (the portion used to pay down the PPoR)?
Is there any other way?
Thanks for your help!
In English that says 'we also felt this left us some leeway'!
Sorry! Typing too fast…
Hi there,
I guess its too late. May be you can buy another investment and then max your debt.
Regards,
Bharat.Can I have a second opinion anyone?
What about selling the investment property into a Unit Trust and borrowing the full valuation price being say $240K and then using the residual net proceeds ($240K minus loan owning of $100K) to pay down your PPOR non deductible mortgage.
This shifts $140K of the loan from non deductible to deductible debt.
You need to crunch the numbers depending on your marginal tax rates but if you intend to keep the property long term will certainly save you a considerable amount of non deductible interest of the coming years.
Richard Taylor | Australia's leading private lender
Thanks Richard!
would this incur stamp duty in the sale of the property?
Mark
Yes it would involve duty at the normal rate charged however the SD is then added to the cost base for any future sale and the entire debt becomes Tax deductible.
At the moment i probably do a deal a week for clients in the same position.
Usually they have paid off their PPOR and then decide they wish to buy a bigger home yet keep the old PPOR as an IP.
When you explain to them that the interest on the new loan would not be Tax deductible they are stunned and want a way to be able to claim the interest.Richard Taylor | Australia's leading private lender
hi there,
i heard of this from a friend so not to sure if it will work or not but some one here should be able to correct me if i wrong.
depending on who pays the most tax you or your wife buys the other person out of the IP, putting it in there name only, then use the cash to pay down your PPOR.
the person who did this was in NSW so different laws in different state but it might be some thing to look into.
will cost you some money up front but saved them thousands in the long run.
KingB
This is precisely as i have outlined and yes it works.
i probably do a deal a week at the moment on this basis.
Richard Taylor | Australia's leading private lender
maybe time for another IP
Qlds007 wrote:What about selling the investment property into a Unit Trust and borrowing the full valuation price being say $240K and then using the residual net proceeds ($240K minus loan owning of $100K) to pay down your PPOR non deductible mortgage.
This shifts $140K of the loan from non deductible to deductible debt.
You need to crunch the numbers depending on your marginal tax rates but if you intend to keep the property long term will certainly save you a considerable amount of non deductible interest of the coming years.
Richard, I have the same problem with 2 IPs – one has $130k equity (300-170) and the other about 120 (800-680). We owe 480k on a 600 PPoR. The PPoR and 2nd IP are in my wifes' name only (but the mortgage is in both names). I asked my accountant about setting up a Trust, he felt it wasn't worth it because we weren't cash flow positive, i.e there is no income to distribute.
As a second opinion, would it be worth looking into this again?
Chris
Work out how much tax your wife would pay, and the stamp duty payable.
Then out how much interest you will save when you pay down your home loan. See how long it will take to get your money back.
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
Mark,
I am refinancing a previous PPR that is now an IP for full valuation + stamp duty. Proceeds go against my PPR and its all deductable because me and wife transferred the property into trust. I am $300 per week better off by doing this.
I don't want to sound too presumptious, but given the continuing tax cuts on offer by both sides of the political spectrum, are you paying that much tax now? Yes I agree that tax should always be avoided where legally possible, but doing complicated transactions to 'save tax' needs to be looked into very carefully – don't end up spending $1 to save 50 cents – I've seen it happen over and over again. Do the sums and be realistic is my advice.
Qlds007 wrote:Mark
Yes it would involve duty at the normal rate charged however the SD is then added to the cost base for any future sale and the entire debt becomes Tax deductible.
At the moment i probably do a deal a week for clients in the same position.
Usually they have paid off their PPOR and then decide they wish to buy a bigger home yet keep the old PPOR as an IP.
When you explain to them that the interest on the new loan would not be Tax deductible they are stunned and want a way to be able to claim the interest.Richard,
I am faced with this exact dilemma atm.
We are settling a new PPOR on the 9/11 and have taken a 141k deposit against our current home for the new PPOR.
I have a broker that I use on a regular basis, but I'm not sure he is to clued up with trusts etc.
I did ask the other day in the forums about trusts and got some good feedback and went away and do some research and spoke to my accountant etc. But the idea of selling the old PPOR into a trust didnt seem clear to me..
As it didnt seem worthwhile unless the PPOR was CF+ and extremely so? As the trust cant distribute losses?
If I take a bigger loan against the old PPOR in the trust and pay down some of the new PPORs loan (or buy more IPs
) then whats the advantage if the property is geared so high its no longer CF+… or am I really confused Cheers
Actually I should add I have 3 other IPs… I imagaine I could sell ALL of them into a trust and pay out the PPOR??
WoW I never though of that?!
Wow
Seems like I have generated some interest here. Thanks everyone for your input, especially Richard! Terry also makes a very good point about how long it would take to get your money back.
Doing some calculations on the back of an envelope and assuming that I pay stamp duty on the lot then I am up for about 6k in stamp duty if I wanted to increase the borrowings to $180k (plus any other costs).
As I have now increased my investment borrowings by around 80K that is very roughly an extra 5k in interest a year which approximates about $1,250 in the hand at the 30% tax rate. meaning it will take me 5 years to pay for the stamp duty difference.
I have not accounted for the difference in borrowings as the 80K will just got from one loan to another so I don't think it would save any cash repayment wise.
Have I got any of that right?
This is a great topic well done. I am trying to work out a similar problem too. I own 1 IP (owned through family trust)which is a unit valued 195k. I am looking at purchasing 1 more unit but not sure if i should add it to the trust or take it on in my name as it will be negatively geared at approx the same value as the first. My income = 73000k.
Question is, would it be better to add it to the trust or buy it personally.
I am also looking at buying a commercial property that may return lease payments of 52000pa. (not sure of the purchase price yet as it will be at auction).
Any thoughts?
) then whats the advantage if the property is geared so high its no longer CF+… or am I really confused 
You must be logged in to reply to this topic. If you don't have an account, you can register here.
