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That seemed so strange that I just had to have a look myself.
The link below is to the ATO site.
http://www.ato.gov.au/individuals/content.asp?doc=/content/36887.htm
If you look at the second example where the house was rented out for more than 6 years then CGT is payable on only the time that is over 6 years.
Total time of house ownership 5356 days
total no. days rented 2556
total no. days rented in 1st 6 years 2191Extra income producing days 365 days
Portion of taxable CG = Total CG x 365/5356
Not the easiest example to follow. Not sure why they made it so complicated.
However, if my understanding of this example is correct then you only pay CGT on the days it was rented out above the 6 years but on the total CG over the whole period of ownership. That last part is not great.
It's definately worth coming back to live, even for a short time, before the 6 years expires though I suspect if you make it obvious that the reason you came back was to restart the 6 year rule they will disallow it.
Also if you rent it out for just less than 6 years and then leave it vacant till you sell that also avoids incurring CGT.
Naturally a good accountant is the best source of advice.Can anyone supply me with a link to the information you found as it seems to contradict the info I found. ?
Cheers
ElkaHello Marl
Banks will usually allow you to top up your loan to 80% of the current valuation so if your unit will be worth $200K and you believe that your loan at the time will be $130K then you should be able to pull out $30K of equity.
However, why would you do it this way ?.
Instead of paying down your loan by $30K you should deposit the extra repayments into a 100% offset account linked to your loan. The interest saving will be the same. You will also be better off if your loan is IO rather than PI.
When you are ready to buy the next unit you then use this $30K as deposit and costs. When you rent out the first unit the interest on the full $160K becomes tax deductible.
If you had paid down the first loan and then re borrowed the $30K to fund the second unit, only the interest on $130K would be tax deductible as the other $30K would have been for personal use (funding your home).
Here is a link to a good explanation of the advantages and use of an offset account by Qlds007
But that hasn't actually answered your question.
$30K should be enough as deposit and costs for the next unit if you don't mind paying LMI again. To avoid this cost you will need about $48K ( $37K deposit plus $11K costs) to buy another $185K unit.
It's not possible to say whether you will be able to afford the second unit in 12 months without knowing how much negative gearing you can afford.
When you rent out your first unit the figures will look something like this.
Rental income $10,400 = (52 x $200pw)
Expenses $2080 = ( normally about 20% of rent to cover agents fees, insurance, council fees, water, repairs,
vacancy period etc.)
Interest $14,400= ( used 9% on $160K IO loan)Loss $6,080= ( $117 pw )
Of cause this loss will help reduce the tax you pay and you should also be able to claim some depreciation which will also help reduce the tax you currently pay.
It's great to see that you have a plan to get where you want to go and are willing to do the work.
Hope this helps
Elka
It has been puzzling me as to why Scamp, who currently lives in the Netherlands but is planning to immigrate to Australia soon, has been so passionate …… no, …. correction…. obsessive …. about persuading us that the market is doomed and about to crash US style. This message has been drummed into forum members relentlessly even in threads when the question under discussion was specific and nothing to do with this topic.
And not only on this forum.
Then I came across a post from harb which may explain everything.
https://www.propertyinvesting.com/forums/property-investing/help-needed/4325502
You mean like your genius hoax ?
Scamp wrote:
My genius plan was to advertise houses for 30% under the price of an auctioned house, with public viewings the same date as the auction, and the same times too, just to make sure I'm the only one at the auction
Nothing a RE can come up with that I can't counter.
http://forum.globalhousepricecrash.com/index.php?showtopic=35049
Is this another genius plan of yours to singlehandedly panic investors and cause a property crash so that you will get more bang for your euros when you get here?
Come on. Fess up scamp.
ElkaHello Kenzel
"LOC seems the common approach however how should I best utilise my offset balance of 10K? Should I dump it into the existing loan of 80K and then apply for LOC against the now 30K (20K + 10K) so I have more tax deductability potential (I've read this is called debt recycling from somewhere…not sure…) or should I leave it and use it to finance borrowing costs and prop. management fees?"
Since you intend to move into your current IP as soon as it’s “paid off” I think that you will be better off paying the $10K currently in the offset account off the loan and then re borrowing it (either as a loc or a split loan?? ) to use for the next IP. This way you will be paying this property, which is to become your PPOR, off quicker. The re borrowed $10K will remain tax deductible even after this property becomes your home as it was borrowed to fund the next IP.
As Richard has explained, if there is a chance that you will want another PPOR one day, you should then “pay off” the rest of the loan (now $70K) by having it in an offset account linked to this loan rather than off the loan itself.
If you can re borrow more than $10K from this property ( if the valuation is more than $100K now) it will help reduce the LVR on your next IP and thus reduce the LMI you will need to pay……… as v8ghia has already pointed out.
Your best bet may be to ring Richard, explain your situation in detail and get him to structure and organize your loans. It won’t cost you anything extra and at least it will be done right. Just a suggestion as your banker does not seem to inspire confidence.
BTW. NO, I don’t know Richard except from his posts and NO I don’t get any commission from him.
Hope this helps
Elka
