Hi, I am a newbie of this forum and I appreciate your advice on my property investment.
Currently I and my wife own a PPOR worth 550K valued by bank. The loan balance is 175K.
We are going to buy a townhouse at around 737K and plan to move in and turn current PPOR into IP.
I intend to refinance the loans with another bank as follows:
– Set up IO loan for current PPOR and P&I loan with offset a/c for the townhouse
– Transfer the accessible equity of PPOR (550*80% – 175) = 265K to offset account
– After paying 20% deposit of 147.4K plus 33K stamp duty and other fees we will have about 84K in offset account
– The IO and P&I fortnightly payments will be debited from this offset accountMy questions are
– Is this the best way to structure the loans in term of tax?
– As the bank valued PPOR at 550K, I dont need an extra valuation for CGT purpose if I decide to sell it after more than 6 years, do I?
– If I sell it, for instance, 12 years later for 700K will CGT be (700-550)* 6/12* 50% discount = 37.5K?Thanks for your advice.
Brian.
BrianN wrote:– Is this the best way to structure the loans in term of tax?It would be preferable to have a larger deductible debt against your IP. You might be able to regear via a spousal or trust sale. Do you anticipate the new townhouse ever turning into an IP?
BrianN wrote:– As the bank valued PPOR at 550K, I dont need an extra valuation for CGT purpose if I decide to sell it after more than 6 years, do I?No – that should suffice is you ever need to provide what the value was when it became an IP.
BrianN wrote:– If I sell it, for instance, 12 years later for 700K will CGT be (700-550)* 6/12* 50% discount = 37.5K?The CGT will be based on the gain during the time it was an IP.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
I think the guys at Acceptance Finance would give you a better idea than the Forum on this question.
Bear in mind that the tax-deductibility of the debt follows the purpose of the debt – so what is the purpose of debt financing for your offset account? If that’s to reduce your personal interest cost, then it probably is not deductible. Accountant will tell you how they would treat the different options you are looking at.
(from the Mortgage Mincer)
BrianN wrote:Hi, I am a newbie of this forum and I appreciate your advice on my property investment.Currently I and my wife own a PPOR worth 550K valued by bank. The loan balance is 175K.
We are going to buy a townhouse at around 737K and plan to move in and turn current PPOR into IP.
I intend to refinance the loans with another bank as follows:
– Set up IO loan for current PPOR and P&I loan with offset a/c for the townhouse
– Transfer the accessible equity of PPOR (550*80% – 175) = 265K to offset account
– After paying 20% deposit of 147.4K plus 33K stamp duty and other fees we will have about 84K in offset account
– The IO and P&I fortnightly payments will be debited from this offset accountMy questions are
– Is this the best way to structure the loans in term of tax?
– As the bank valued PPOR at 550K, I dont need an extra valuation for CGT purpose if I decide to sell it after more than 6 years, do I?
– If I sell it, for instance, 12 years later for 700K will CGT be (700-550)* 6/12* 50% discount = 37.5K?Thanks for your advice.
Brian.
The interest on the $265,000 loan will not be deductible. But it may still be worth doing, but make sure this loan is a separate split. so you don't contaminate the existing loan on the property. $175,000 loan should be deductible.
You cannot use the main residence CGT exemption because you will be claiming the new house (or claim old house and not knew house).
If your house is in VIC you may be able to buy the house off your wife with no stamp duty and borrow the lot. This will create a large deductible loan with a large cash deposit for the new house. Will save you heaps potentially.
But watch out for asset protection and estate planning 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
normbay wrote:I think the guys at Acceptance Finance would give you a better idea than the Forum on this question. Bear in mind that the tax-deductibility of the debt follows the purpose of the debt – so what is the purpose of debt financing for your offset account? If that's to reduce your personal interest cost, then it probably is not deductible. Accountant will tell you how they would treat the different options you are looking at. (from the Mortgage Mincer)Yeah right!
Nice first post
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
Really i would have though Jamie was just as knowledgeable and Professional than anyone from Acceptance Finance.
As Jamie has mentioned depending on the numbers looking at buying your wife's interest in the current property may well be a worthwhile proposition even given the potential Stamp Duty consequences.
More hard data would be required however certainly worth doing the exercise to see the level of savings.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Terryw wrote:normbay wrote:I think the guys at Acceptance Finance would give you a better idea than the Forum on this question. Bear in mind that the tax-deductibility of the debt follows the purpose of the debt – so what is the purpose of debt financing for your offset account? If that's to reduce your personal interest cost, then it probably is not deductible. Accountant will tell you how they would treat the different options you are looking at. (from the Mortgage Mincer)Yeah right!
Nice first post
Haha – gotta love it.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Thank you all.
To Jamie: we potentially move back to the apartment in 15 years from the townhouse when the kids grow up. Any change to the options?
To Terryw: given that we have 120K to redraw from current loan, can it add up with 175K deductible loan? Is there any way at all to fully claim interest on 440K?
To Richard: is there any stamp duty in NSW if I buy the other half from my wife? In term of asset protection, I would say I need only a valid Will or do I have to set up the trust?
Cheers
BrianN wrote:To Terryw: given that we have 120K to redraw from current loan, can it add up with 175K deductible loan? Is there any way at all to fully claim interest on 440K?
To Richard: is there any stamp duty in NSW if I buy the other half from my wife? In term of asset protection, I would say I need only a valid Will or do I have to set up the trust?
Cheers
If you borrow the $120,000 from redraw the interest will only be deductible if this is used for investment/business.
In NSW there would be stamp duty payable if you bought your wife's interest in the property. What do you mean about asset protection?
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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