Hi everyone,
I am very new to this site and all this finance stuff. Was not sure where this post belonged so chose this one, hope I got it right
Here is my dilemma, any suggestions/comments most appreciated.
I have been asked if I want to relocate with my job from Canberra to Newcastle.
I have a property here in the ACT which has a loan of $180K on it.
Because the rentals in Newcastle are pretty good I would probably rent there. As I have 2 dogs, this could be hard so may end up buying a little later on.I really don't know if I should accept the position. There is no difference in pay, but they pay for my removal etc…..
Here are some details:
My mortgage payments on the ACT property right now are $290 per week
Probable rent on the ACT property $320.00 per week
Possible rent to pay in Newcastle $250.00 per week
The ACT house was built in 1988.
And I have lived here since January 2003.I have no clue about tax implications etc.. and while I'm not struggling, I could not afford a big tax bill to pay off at the EOY. So I am here looking like an idiot hoping to be enlightened a little
What would you recommend I do to make this situation be in my favour in the $$ sense.
I only have 2 weeks to give them a yes or no. With the move to be mostly likely to occur in June/July.
I would also have to at least re-carpet one bedroom as it wasn't done when I had a water leak (due to costs at the time), a quick repaint and a tidy up of the backyard.Thanks very much in advance.
Lorree
Forget the things that stay the same – eg you'll get capital growth on the Canberra property CGT-free either way (provided you maintain Canberra as your PPR), and make the mortgage payments, either way.
So, the things that change are (assuming 30% marginal tax rate):
* you start paying $250 in non-deductible rent – after tax – $250
* you start receiving $320 in taxable rental income – after tax + $230
* your expenses of holding the IP now become deductible – reduced tax bill of approx $120 pw (assuming expenses $400 pw)
So the difference in position is -$250+$230+$120 = $100 of after-tax dollars.
But if you do buy in Newcastle, and Canberra stops being your PPR, then you incur CGT on the gains in Canberra. $5000 per year of after-tax dollars difference equates to $5000/0.3 = $17K of taxable gains, or $34K of capital gain. I estimate your PPR is worth about $450K (just based on the figures given), so in other words, if you make a 34/450 = 7.6% capital growth – which is probably right as an average over the long term – then it wipes out any difference between the two scenarios.
To my way of thinking, that's very little financial impact either way, so you should base your decision on wherever you think you'd most enjoy living, or take the job that has the best opportunities. Good luck!
EljayC wrote:Hi everyone,
I am very new to this site and all this finance stuff. Was not sure where this post belonged so chose this one, hope I got it rightHere is my dilemma, any suggestions/comments most appreciated.
I have been asked if I want to relocate with my job from Canberra to Newcastle.
I have a property here in the ACT which has a loan of $180K on it.
Because the rentals in Newcastle are pretty good I would probably rent there. As I have 2 dogs, this could be hard so may end up buying a little later on.I really don't know if I should accept the position. There is no difference in pay, but they pay for my removal etc…..
Here are some details:
My mortgage payments on the ACT property right now are $290 per week
Probable rent on the ACT property $320.00 per week
Possible rent to pay in Newcastle $250.00 per week
The ACT house was built in 1988.
And I have lived here since January 2003.I have no clue about tax implications etc.. and while I'm not struggling, I could not afford a big tax bill to pay off at the EOY. So I am here looking like an idiot hoping to be enlightened a little
What would you recommend I do to make this situation be in my favour in the $$ sense.
I only have 2 weeks to give them a yes or no. With the move to be mostly likely to occur in June/July.
I would also have to at least re-carpet one bedroom as it wasn't done when I had a water leak (due to costs at the time), a quick repaint and a tidy up of the backyard.Thanks very much in advance.
Lorree
If you rent out your ACT house when you move to Newcastle, you won't be paying tax at the end of the year; you'll be getting tax back. Probably a lot.
All of the expenses and the loan interest on your ACT house will become tax deductible after you convert it to an IP, and because it was built after 1987, you can depreciate the building and the fixtures/fittings against your earned income tax as well.
You would need to have a Depreciation Schedule prepared by a Quantity Surveyor at a cost of around $500, but this cost is also tax deductible and will pay for itself in the first tax return.
You can also rent out your house for up to 6 years before you become liable for capital gains tax if you should wish to sell it in the future.
Another 'must have' is to get Landlord's Insurance as well as your normal Building and Contents insurance before the Tenant moves in. It is around $200 or so dollars for this, and it is a tax deductible expense.
Thanks so much for your responses.
So this would be financially beneficial…. or not so much so?
Sorry I read from the 1st response that I wouldn't be any worse off…but I wouldn't really be any better off either.
But the 2nd post is more towards being better off.
I am on my own so only have my wage which is currently at $52,404 with a 6% increase between now and Christmas.I am not moving for the job. I am looking at moving because I was hoping this would be the right thing to do financially. Maybe the wrong way to think about it, but am hoping to get something out of the house and pay it off quicker. I would then like to use the equity in the house later on to buy another investment property.
Having the only income I was thinking this might be my only opportunity to come out ahead in the foreseeable future.Thanks again.
LorreeThe difference between Marc's and my views depends on how significant your depreciation deductions are. I confess I probably under-claim depreciation so he may be correct. Does anybody know how significant depreciation deductions on a 20yo house would likely be?
i hate to quote kiosaki on a mcknight website but………
one deal wont make you rich ,its a system of doing deals
so if you have to move house, and state to get the deal going every time its not really a good system
and you will miss your friends
unless you are moving closer to family or friends ,or getting a massive payrise or valuable experience
i would advise buying a bunch of books and working out how to buy a property
that achieves your aims (steves book is excellent at helping you define this type of property )
its a lot less fusspat the dogs for me
i would still be renting if i had no dogs !cheers
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