My wife and I currently have a huge mortgage over the home we live in (can't claim any of the interest for tax). She has an investment property that is 100% unencumbered. Our tax agent said it was legitimate for me to purchase the rental property off my wife. My wife could then put this money on the current loan thereby reducing our non-deductible interest on our home. I'd then have a rental with deductible interest (I'd take out an interest only loan).
I'm thinking of doing the conveyancing myself…most of the conveyancing searches and inspections wouldn't be needed. However I'm not 100% sure how I'd go about setting the fair value for the property – what price should my wife put on the property so that the transaction is seen as arms length and legitimate from a taxation perspective. Ideally I'd like to reduce our non-deductible interest as much as possible…but I'm sure the government has some sort of constraints on the price! Our should I just base it on the value that the bank comes up with when it comes time for my to start my new interest only loan?
Anyone got any ideas?
Cheers!!!!
Get a valuation done. Note CGT may be applicable unless this was your wife's PPOR and you both elect that it be your PPOR for CGT purposes, this will mean your existing house will lose some of its exemption from CGT as a PPOR. If this had bee your wife's PPOR the value for CGT will be reset at the value as at the date it first started earning income
This issue has bitten me before. My advice: get a sworn valuation for mortgage purposes. You can arrange this yourself, or ask the bank to do it for you.
A written valuation or 2 letters from local estate agents giving their market opinion should be sufficient.
We have done hundres of these for clients and never had an issue when using an agents letter.
The Conveyancer will do the Transfer up for you on this figure and your new loan can be this plus Stamp Duty and any other costs.
As cjr mentioned there maybe some CGT to consider.
Richard Taylor | Australia's leading private lender
G'Day Guys – thanks for the advice! Yep, we're definitely going to get hit with some CGT, but I figure if it helps us pay off our PPOR sooner, then I'll be better off (hopefully allow more rental properties to be purchased sooner!
Cheers
Just remember you need to make sure you have funds put aside to cover the GCT when it becomes payable.
Richard Taylor | Australia's leading private lender
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