Hi everyone,
I have an investment property that's got 170K nondeductible interest because it was firstly our PPOR but have unfortunately paid down principal value by 170K. Even we have refinanced that 170K and put into the offset account for our new PPOR, our accountant had told us we could only deduct what's left in our original loan which was 330K. Correct me if I am wrong about this.
This property at market value today is around 600K. If I were to sell this property to my husband, he then borrow 600 000 to purchase this property as an investment, would the full 600K be tax deductible? Does he require to pay the full amount of stamp duty? If yes, is stamp duty paid on this property fully tax deductible?
And as for CGT calculation, this property was firstly bought for 500K at NOV 2008, lived in for 14 month, then rent out on JAN 2010 (market value around 580K), and say I sell it for 600K today.
Is CGT calculated as
1. (600K-500K)*50% or
2. (600K-580K)*50%?If second calculation was correct, but we forget to get a valuer to value our property as at JAN 2010 when we rent it out, is it too late to get someone to value as at 2010 JAN or they will only be able to value property at today's market value?
Any advice or help is appreciated
From what I understand, you can not get a retrospective valuation done. The home will be CGT exempt for the time you lived in it as your PPOR. You will have to do the calcs yourself as your post doesnt really make sense (you said you purchase the property in November 2009, lived in it for 14 months and then rented it out on January 2010).
If your husband purchased the property from you, then he will pay stamp duty on the market value of the property as well as yourself paying the CGT.
Cheers,
LukeFirstly, is the property solely in your name now? Assuming it is.
CGT wll be payable on the sale price less value at the date you moved out of it you moved out of it, so roughly $600k – $580k. Less fees such as stamp duty etc. 50% discount on CG too. So probably little or no CGT will be payable.
Your husband can buy your property and borrow to do so. If the house is a rental then he should be able to claim the whole of the interest borrowed.
You still have to watch out for the ATO applying Part IVA Tax Act and saying this is a scheme with a dominant purpose of tax. Maybe it is for estate planning reasons instead?
Stamp duty would depend on the state the property is located in. In NSW stamp duty would be payable I think. In full. In Vic you may be exempt.
I have also assumed this is not being done as the result of a divorce or family law settlement – if so there would be no CG and no stamp duty probably.
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
You will have to do the calcs yourself as your post doesnt really make sense (you said you purchase the property in November 2009, lived in it for 14 months and then rented it out on January 2010).
Sorry my mistake, I purchased the property at November 2008 not 2009. and lived in for 13-14 months and rent out on 2010 Jan.
But I don't know how to do a calculation on the value of my property, I can only roughly say it will be around 580K at 2010. What sort of evidence that I can get to prove my property is worth 580K at 2010 Jan for CGT calculation purpose? and advice on that?
As price didn't went up much during 2010 until now, so I wont be paying much tax on CGT. Plus I am a housewife with no income, i guess having this investment property doesn't give me any sort of tax benefit. And my husband is on top tax rate at 37% with his income, therefore probably by transferring this property to him will get more tax benefit in the long run. As the property is negative geared at 20000 per year.If your husband is part owner then he can only buy your share, not the whole property (can't sell to yourself).
You would need a valuation to be done to determine market value, cant rely on your own estimates for tax purposes.
You should also get legal advice as there are many issues to consider – family law, estate planning, asset protection, stamp duty and also tax advice regarding the CGT and income tax issues.
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
Firstly, is the property solely in your name now? Assuming it is.
Yes it is solely in my name, I have got this property before we get married.
CGT wll be payable on the sale price less value at the date you moved out of it you moved out of it, so roughly $600k – $580k. Less fees such as stamp duty etc. 50% discount on CG too. So probably little or no CGT will be payable.
Thanks that's what I really want to hear, but how do I prove my property is worth 580K at 2010 Jan to ATO? It is a 2 bedder apartment in sydney CBD with car park.
Your husband can buy your property and borrow to do so. If the house is a rental then he should be able to claim the whole of the interest borrowed.
Yes it will be rented out in the future.You still have to watch out for the ATO applying Part IVA Tax Act and saying this is a scheme with a dominant purpose of tax. Maybe it is for estate planning reasons instead?
Yeah, by doing this it will release most of our equity in that investment property, plus my husband is on the top tax rate of 37%, and I do no have any income. I should speak with my accountant about this.
Stamp duty would depend on the state the property is located in. In NSW stamp duty would be payable I think. In full. In Vic you may be exempt.
Yeah we are in NSW, but if stamp duty is fully deductible on tax, then we can claim 37% back in the first year.
I have also assumed this is not being done as the result of a divorce or family law settlement – if so there would be no CG and no stamp duty probably.
Yes you are right, we are only doing this to give my husband a better negative gearing opportunity for tax purpose. lol ,,
Otherwise I will have 170K un deductible debt.Thank you so much for the detailed response.
BelindaW
hi Belinda
You can get a valuation to prepare the valuation report based on the date you moved out.
Stamp duty isn't tax deductible against income, but can be claimed again the CGT when you sell. You can probably claim interest on money borrowed to pay the stamp duty though.
Your husband should also seriously consider using a trust structure. if he is self employed this will work well. If not, then it can still work well but you may have to structure it differently.
eg. He could use a fixed unit trust. He could borrow to buy units in the trust and the interest on this loan can be tax deductible to him. later on it will be very flexible and you may be able to transfer the units into your SMSF just before retirement. In NSW this can be done without stamp duty, but CGT would be payable. Once the SMSF owns the units any income could be received tax free depending on your situation.
The units could be transferred to the SMSF over a number of years too, and this would reduce CGT.
Early on this structure doesn't really cost much and doesn't really make much difference, but later on it can be very beneficial.
Imagine if you had purchased using a unit trust – you could have transferred your units to him without stamp duty!
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
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