Hi
We have put an offer on for a property and would like some suggestions as to how to set up the loan.Currently PPOR is about $850 and is paid off except for a minimal amount which gives us the option to redraw if we would like to.
The investment property is $385K. We do have enough saved for a 20% deposit but would prefer not to use it seeing as it is not tax deductible.
Also we were thinking of not having a 50/50 ownership to maximise tax break. What are peoples thoughts on that?
I am on about 40K and my husband on about 70K. We were of the opinion to split the loan something like 70/30 favoring my husband as he has higher income. We spoke to our current accountant who is not always on the ball (we are looking at changing) and he thought i should have the higher proportion so that with the rental income (about $350 pw expected) my husband doesnt move into the higher tax bracket (80K). Being a negative geared property (with interest and expenses associated with the rental property) should his taxable income not decrease?Help is appreciated
Thankswon’t provide any advice…but a few things to note/think about.
1. are your redrawing from your PPOR to access the 20% deposit? if so-speak to your accountant as you may not be able to claim the interest on the 20% part you borrowed…
2. If done correctly you can essentially borrow 100-110% ( stamp duty) of the property value and claim the full interest.
3. split ownership sounds good …but what are your plans for the future – ie will your husband alwasy make more in the future? willl you guy be having or expecting child in the near future- maybe the income will be $0 and $80k by then….consider the pro and cons of a trust ( not right for everyone…and im def NOT recommending a trust structure) – keep your option open and plan ahead..
4. How negativity geared are you? with a $385 purchase and $350 p/w rent…depending on the area and property type + an 80% LVR loan….in some case you may be geared for the first 2-3 years only?
5. How much depreciation is left…what’s your expected tax return ( lost)
Plenty to think about..change accountant if you think she/he is not “” with it”
Regards
MichaelMick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
Sounds like your accountant is not on the ball.
It is not the loan that matters but the % ownership on the title of the proeprty. So you need to work out the cashflow position of hte property you will buy and then how long before it becomes tax positive – ie turning a profit after all expenses.
Then you need to decide to take the short term benefits of claiming more now and then paying more tax later or vice versa.
Good idea not to use your savings. Don't use redraw either. best to set up a separate loan on your PPOR and borrow the costs and deposit from this and keep all your cash for the non deductible debt.
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
Hi,
Redrawing will mix deductible and non deductible debt. To avoid this you can setup an interest only loan on the PPOR for 20% of the purchase.
There are many factors in regards to income. If it is negatively geared, yes it will reduce your husbands income. If you were to do small renos you may be able to increase rent ( plus rent increases over time) and this may make it CF+ and then beneficial to have more to the lower wage earner.
Regards
Gibbo
Terryw wrote:It is not the loan that matters but the % ownership on the title of the proeprty.Pretty sure OP jsut accidently used the wrong terminology – i be scared and worried if this is what the accountant advised
Mick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
You need to have confidence in the professionals that you use and it doesn't sound like your accountant has a grasp on the basics of property investing and the tax concessions associated with it.
It actually sounds like you have a better grasp on the concepts of gearing.
Mick's point above is a good one – it might be negatively geared in the short term but this will change over time as rents increase.
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]
Thanks for the help. Will definitely need to find another accountant, up to know has not been a problem that he was not great as had very easy tax. anyone have any suggestions for accountants in south east melb? have seen house of wealth has often been recommended, would prefer someone a little closer though.
ThanksI send my Melb clients to James at house of wealth – I’m sure it’ll be worth the additional travel time.
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]
Thanks Jamie I will give them a call tomorrow. they must be pretty good their name seems to come up on lots of the posts
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