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This link seems to be pretty clear on the matter;
http://www.ato.gov.au/individuals/content.asp?doc=/content/66031.htm&page=8&H8
A great question. I had always assumed that these costs were all deductible.
Here is an extract from the site;
Acquisition and disposal costs
You cannot claim a deduction for the costs of acquiring or disposing of your rental property. Examples of expenses of this kind include the purchase cost of the property, conveyancing costs, advertising expenses and stamp duty on the transfer of the property (but not stamp duty on a lease of property – see Lease document expenses). However, these costs may form part of the cost base of the property for capital gains tax purposes.
DavidC
Originally posted by narocroc:
……….so I thought we could turn this into a IP and then rent ourselves. We could then use the equity to borrow to invest for positive cashflow and then sell our current now rented property at a latter date before the 6 year no capital gains tax rule applies (because we have already lived in it). ……….
[lmao]Don’t you have to move back into the house to make use of the 6 year rule?
DavidC
Originally posted by youngfella:I worked these rough figures:
You have 170K equity currently. 300K-130k=170K
Of this, the bank will happily lend you 80% of 170K = 136K.
Just on a technical note, shouldn’t the 80% be calculated on the property value?
I.e. 80% of $300K leaves $240K. So the bank will lend up to $240 with no LMI. You owe $130K so you can borrow a further $110K.
Have I got this right?David Coffey
Thanks Richard,
You’ve mentioned a few times to switch to an interest only loan. Now, given that the Equity Access loan we have currently is already interest only, are you suggesting a different type of interest only loan? I’m guessing that perhaps you mean a loan that is still interest only but does not offer the flexibility of a transctional acc like the E.Access does?
Cheers,
David Coffey
Thanks Richard,
The Equity Access loan refinanced our initial P&I loan (with another lender) based on a revised PPoR valuation. We have since taken this loan up to it’s limit by using the available funds for renovations plus other personal expenses including bills etc.
I’m still not sure where this leaves us in terms of claiming interest once this prop. becomes an IP given that some of the loan total comes from personal stuff not related to the property. Does it not matter as it was spent before the property became an IP?
Cheers,
David Coffey
Originally posted by Qlds007:Your LOC can be used to used to fund several properties subject to the avaialble equity you have in the LOC.
Would this not make claiming interest on the various IP’s difficult if they are funded from one LOC? Although I guess it doesn’t matter as long as the LOC doesn’t fund anything personal or connected to your PPoR.(?)
David Coffey
So if I set up an offset loan like this, I’m assuming that I still need make transfers onto the loan to cover interest? If so I’m assuming that I just need to make sure I at least cover the interest amount, or can the interest be charged directly to the offset acc?
Also, I’m pretty sure the ‘Equity Access’ loan we have at present is interest only. There are no required repyments, only the approved limit that we cannot exceed.
When you say “try to claim interest on the balance”, is this a matter of having a sort of ‘clean slate’ once the PPoR becomes an IP. If this is the case, and I say this only int the interest of understanding the situation, would it not be technically advantageous to run this laon up to the max limit (which it pretty much is anyway) before it changes to an IP thus maximizing claimable interest? I reiterate that I ask this question only to gain a clearer understanding of the technicalities of the situation.
Lastly, how to best ensure the existing and new construction loan are not Xcollateralized? I’m pretty sure theyre not given that the Equity Access loan we have now leaves virtually no usable equity anyway.
Thanks for all your help. You guys are very generous with your time and it is much appreciated.
Cheers,
David
Thanks Richard,
Here is some more detail;
Existing loan on PPoR is interest only Westpac Equity Access loan with max $265K and sitting near that level. Once the PPoR becomes an IP, can I claim interest on the full balance from the time it becomes an IP regardless of how that balance was achieved up to that point. If not how can one determine which portion of the balance has claimable interest given our use of the loan as a transaction acc.?
Construction loan will be a separate, interest only loan (Westpac again) approved up to $250K.
I’m aware that once the PPoR becomes an IP then CGT comes into play from that date. Are there any other CGT implications? We plan to live in the new house for at least a year.
With an offset acc. against an IP interest only loan, is the idea that all rental payments plus extra (to cover interest or for rates/maintenance etc) are paid into the offset and then only the exact interest amount transferred onto the loan?Sorry, so many questions. This is my first foray into all this and just when you think you have a handle on things………..
Cheers,
David Coffey
If you use a LOC on the first IP to raise 20% deposit for the second, you then have a mixture of interest on the 1st IP LOC, making tax deductions confusing. Does one need to raise that deposit amount under a separate account but under the same LOC if that makes sense? If so, is this option available with most LOC products?
David Coffey
Forgive my ignorance…..
How, and under what circumstances can one organize access to a property before settlement? I got the seller to open up our current for an hour or so a couple of days before settlement so I could move some furniture in, but this is hardly what we’re talking about here is it!
What is an LMI company?
Cheers
David Coffey
