Hello Nucopia

The capital gain you make on a property is just added to the rest of your taxable income for that year and taxed at your top marginal tax rate. If you have had the property for more than 12 months you get a 50% discount on the gain.

Naturally if you have no other income for the year that you sell the property the tax will be lower.

If the property is held in a trust then the advantage is that you can apportion the capital gain between beneficiaries to try to minimise the tax by giving more to the lower income earner(s). 

There are other things that you can do to minimise CGT such as contributing extra to your super fund so the best thing is to talk to your accountant before you sell an IP.

Cheers
Elka 

Hello Nucopia

There is no CGT on your PPOR. It's not a question of deferring it. It is just not applicable.

The post above refers to investment properties on which unfortunately you do have to pay CGT on selling…. assuming you made a gain.

Cheers
Elka

Good to know. Thank you for that. 

Sorry Simon. You were right

Cheers
Elka

I don't know the law about when you are obliged to have a body corporate. I do know that when I bought a unit (1 of 2) 5 years ago there was no body corporate and each owner had their own building insurance.

When I was organising strata insurance for my unit one of the questions I needed to answer was…..  is the other unit insured and with whom. I was a bit concerned about the separate insurance policies and worried about the insurance cover for the common area as I was not sure what type of insurance policy the owner of the other unit had.  I was trying to persuade the other owner to go halves in one strata insurance policy covering both units when I learned that they were also wanting to sell so I bought that one too. Insurance problem solved  

Seriously though, if there is no body corporate and the other owner has no mortgage then there is nothing (except good sense) that compels them to have insurance… is there?
 I can imagine that in those circumstances I may have had problems getting my first unit insured.

Elka

Hello Tom

I believe the cost for mine will be somewhere in the order of $500- $600. Part of it needs to be done by a plumber and then the water people come and do the final connection.

However the cost will depend on how the pipes run and whether any new ones will need to be laid.

I suggest you ring the authority supplying water in your area and ask them about the process. They will need to send you out some forms for your plumber. Also get at least 2 quotes from plumbers for the job.

In my case it's a question of only 2 units on the block and I own both of them. The whole property is currently on one meter and the water usage just gets apportioned 50/50 to each unit. However, as it's an estimate and not an actual reading, I am obliged to pay all water usage for both properties.I am actually getting the meter split into 3. One for each unit and one for the common garden area. I will still need to pay the usage for the common garden area but not for the 2 units. I have been advised that the 3rd meter will only attract a $15 meter charge as well as a usage charge but no other service charges (sewage etc.etc) as there is no toilet involved.

I am with Melbourne water.

Hope this helps
Elka

Hello blueheeler

I think you mean interest on 40% of the loan. 

But what have you given away? I don't know these loans but assume that they want 20% of your capital gain in return. Imagine how much you would have to give away if you had bought a property pre boom and sold post boom or kept it for a long time so that you must have had a capital growth in that time period. 

Real life example.

I bought a property in 1992 for $255K   
20% is $51K  so interest saved on this part using 9% for the 15years is -/+ $42K and another $42K saved because of the 20% in an offset account, as per your suggestion. 
Total interest saved $84K.
Note: I don't know the real average interest rate for the period but think 9% should cover it?

Current value of property $920K so doing it very roughly CG is $665. 
20% of this is $133K. So I saved $84K to give away $133K.

Good business for the bank I think. 

Elka

Hello Moosehead

Whether interest on a loan is tax deductible or not depends on what you did with the money you borrowed. If you bought yourself a nice boat, it's not tax deductible. If you bought yourself a house to live in (PPOR) it's not tax deductible.
It does not matter which asset you used to secure the loan.

In the 4 steps you outlined above, the asset you used to secure the loan may become an IP but that's irrelevant in this case. You used the money for private purposes. i.e. to buy a PPOR. so no tax deduction for the interest on that money.

However, if there is still an original loan on the property then the interest on that part is tax deductible.

For example you have a $300K loan on your PPOR. You borrow an additional $100K against the property to buy yourself another PPOR and turn the original one into an IP. 

Interest on the $300K is tax deductible.
Interest on the $100K is not tax deductible.

Actually Richard is the expert in the area of loan structuring so I hope he will correct me if I explain it badly. I can do it best with an example.

You buy a PPOR and take out an IO loan with a 100% offset facility.
You put all your money into the offset account to save interest.
If you ever decide to turn this property into an IP and buy yourself another PPOR then you simply use whatever money you need from the offset account to finance the new place. You also link this offset account to the new loan (for your PPOR).
The money in the offset account is now working to reduce the non deductible interest on you PPOR.
The interest on the loan for what has now become an IP increases as it's no longer being offset but this interest is all tax deductible.

Hope this helps.

Elka

The agent you bought through is no longer being helpful? How strange.
 
Maybe contacting another couple of agents who deal in that area will get you more information, specially about rent and demand. This is also a good way to sort out who you will get to manage the IP for you …. assuming you are not going to do it yourself.

A big difference between commercial and residential IPs is that it usually takes much longer to get a tenant with a com. IP. so doing it yourself may end up being a false economy unless the demand is high. Also the lease needs to be drawn up by your solicitor as it's much more complicated than a res. lease.

Yes, I also have 3 residentual IPs. This is my only commercial one but sometime next year I hope to be in a position to look for another.

Cheers
Elka

Hello Wayne

As I recently posted elsewhere on the forum I have a commercial property (wharehouse/office) which is being managed for me by a PM. I pay 10% letting fee and 4% management fees. This is in Melbourne.

Cheers
Elka

Hello Daniel

I think the reason you have not received any answers is that this is not something that any of us may have come across as it is a somewhat unusual arrangement. As a person totally unqualified in this area I think I see a problems with it.

How will the income from the IP be split?. If you don't receive any income from the unit you will not be entitled to claim any expenses, including depreciation. If you do receive income from the unit, how are you going to use it to service the loan (and be able to claim the interest) since your name is not on the loan.

Maybe a good accountant can suggest a better arrangement and answer your questions.

Sorry, no answers just more questions.

Elka