You can try:

http://www.onthehouse.com.au/
http://www.realestate.com.au/sold
http://www.domain.com.au/?mode=sold
http://www.domain.com.au/Investors

Obviously paid data will give you more comprehensive information.

Best of luck
Kenny

Sorry Benno,
I’m not entirely sure what you are asking: “But if you simply refinance, you are limited to purchasing investments with that refinanced amount?”
What I was trying to say – once you have changed the title, you can refinance the property with the bank under a different loan structure / name. If the intention is to use this property as an investment property to generate income, then the mortgage interest is likely to be deductible. So if the exercise is to maximise your tax deductibility, then one would maximise the amount that can be borrowed for this property (e.g. if the property is valued at 500K, then you may want to refinance the property at $500K or even $525K, if the bank is willing to). After paying off the previous loan amount, you are free to spend/invest the proceed elsewhere, and the mortgage interest on the $525K will be full deductible.
So to take your question literally, Yes. The income tax deduction is limited to the mortgage interest incurred for the loan used to refinance the property. This deductibility remains regardless of how you spend the proceed (investment or private use) in this particular instance.
To avoid confusion, i should elaborate:
In order to claim a income tax deduction on an investment property, you need to demonstrate nexus (i.e. a connection) between the income generated (i.e. rent) and the expense incurred (i.e mortgage interest). However, sometimes people do a top loan for personal reasons (e.g. to buy a car/yacht). Mortgage interest on this top up amount is normally not tax deductible, because there is no nexus on the income generated.
In the “love and affectionate transfer” scenario, the whole refinanced amount is considered used to acquire this Investment Property (previously PPoR), hence, the mortgage interest will be tax deductible, when the property becomes available for rent.

When you change the PPOR over to IP, the property is no longer CGT exempted. So when you eventually sell the property, you will be required to pay CGT. And in order to calculate the capital gain or loss, you need to determine the cost base. A bank/professional valuation or 3 REA quotes will be sufficient for the ATO. If you don’t have that as evidence of Cost Base, then the ATO will be likely to rely on Local Government estimates (on your Rates statement), but it may not be in your favour as local council usually understates the property value, hence a lower cost base and consequently a higher capital gain.

You should check with your accountant.

Ah Gotcha. I agree

Great info btw. Thanks.

Sorry Mr5o1,

Slight clarification.
Disposal of any CGT assets, is considered a CGT event.
However, despite the CGT event, main residences are exempted from Capital Gains Tax.

I’m a bit confused re your comment about moving out of a main residence to renovate…
What do you mean?
Do you have any literature on this?

Thanks
Kenny

thematrix,

The 6 year rule is also known as the Absence Rule under ITAA s118-145.
If an individual is absent from their main residence they can still treat it as their main residence where:
1, it is used for an income producing purpose – up to 6 years; and
2, it is not used for that purpose – indefinitely.

If you are not absent from the property you may not be entitled to the exemption. So if you rent out part of your home, the 6 year rule may not apply. Instead your CGT exemption is likely to limited to the part of the PPOR you use privately. If this is the first time you have earned income from your PPOR it will cause your cost base to be reset at the market value at the date it first started earning income (A couple of Real Estate Agent documented valuations will probably be sufficient). This can be the case even if you are just renting out a room in your home.

Hope that helps
Kenny

Adski,

With situations like that, it is important to do your research, and document all the communication with your landlord. As you have already done.
Also, it may be beneficial to document all the improvements you have done to the property.
You will probably find the authorities (Fair Trading and Consumers affair Vic) sympathetic towards your situation.

In additional to what is mentioned in the RTA/Legislation, is your Residential Tenancy Agreement you have with your landlord. Go through that with a fine brush and see if there is any clause prohibiting or allowing your landlord to:
1, raise the rent substantially during the lease and
2, kick you out before the lease agreement is terminated without mutual agreement.
In the absence of these factors clearly stated in your lease agreement, RTA and TPA (Trade Practices Act) should kick in to prevent the landlord from increasing unfair rate increase during an existing agreement. However from memory, you will need to apply to the authority and the tribunal for remedy and assessment.
Depending on what is stated in your lease agreement, I would have thought your landlord will be breaching the contract by issuing you with a 120 day notice before the lease is up?

It sounds like your landlord is not employing the service of a Real estate agent as property manager. It is unfortunate that there are cases where the landlord is not that educated and maybe driven by greed, or sometimes desperation. I know it doesn’t help you with your situation, but take comfort in knowing that you have done the right thing. I don’t think I would have done anything differently to be honest (except wait for the formal written notice to put the rent up, before letting her know about the RTA). But I wouldn’t sabotage the property, there is no need to bring yourself down to her level, but do take the dishwasher with you
I personally would be more than happy to have you as a tenant, as clearly agreed by other members of the community. Not all landlords are like that.

Good luck and keep us posted.
Kenny

PS. I am not legally trained, just a disgusted citizen concerned for your welfare.

Hi Matt,

This site gives you up to 36 months:
http://www.investsmart.com.au/property/default.asp?s_cid=domain
It’s just the “Invest” tab on the domain.com.au site.

I find there’s a time lag of the data presented on this site though, so be aware when using this site.

Cheers,
Kenny

Hi Sandtracks,

I agree with S/C.

But to answer your questions:
1, Yes. As property price goes up, you would have built up equity in you home. You can ask your existing bank for an additional loan or go to another bank for a refinance. (There will be costs involved of course) They will do a revaluation of the property to determine how much the property is worth, and how much equity you have. Note that the amount you submitted as your estimation of your property’s market value, may form the cap of their valuation. (even if it may be worth more). Avoiding paying LMI maybe wise (ie up to 80% or 85% depending on lender).

2, The additional loan amount as S/C mentioned, will not be deductible. The nature of the security asset is irrelevant, it depends on the purpose and intend of the loan. The loan is to purchase a PPOR and not income producing. Hence, no.

And if you do choose to sell your first PPOR/ now IP.
3, S/C already said, IPs get sold with tenants in them, and infact it can be a + for a lot of investors if the rent is decent. Personally, I don’t think there is a need for your concern.

4, Depending on the timing of the purchase of second PPOR, you may be eligible for CGT exemptions. You are entitled up to 6 months to dispose (sell) of the first PPOR to acquire the second PPOR and incur no CGT for the first one. You may also continue to elect your first PPOR as the PPOR and apply the 6 year rule. But you can only elect one PPOR at any one time for a family. You will have to access the pros and cons.

Best of luck
Kenny

Hi Pranay,

You may find the following link useful:
Income tax: deductibility of interest on moneys drawn down under line of credit facilities and redraw facilities
http://law.ato.gov.au/atolaw/view.htm?locid='TXR/TR20002/NAT/ATO'&PiT=99991231235958

Essentially, you have a mixed purpose redraw facility (private portion and investment portion). You can still claim the tax deduction for the interest paid on portion of loan you took out (the whole $74K) to acquire the investment in line with s8-1 as it is. This is stated in the above Tax Ruling:

“15. Where a taxpayer has a mixed purpose sub-account, the interest needs to be apportioned between the income producing and non-income producing purposes. Apportionment must be made on a fair and reasonable basis. One approach that we accept as fair and reasonable in relation to the apportionment of interest that has accrued on a daily basis on a mixed purpose account is set out in the following paragraphs. We accept that this approach to apportionment is not the only approach that is fair and reasonable.”

However the down side of not refinancing your loan to split the private and investment portion is:

“21. Where a taxpayer makes repayments over and above the required minimum payment and the line of credit facility comprises one mixed purpose sub-account only, the taxpayer cannot choose to notionally allocate the repayments to a particular portion of the total debt, e.g., the non-income producing portion.”

What this means, is when you pay P&I on the loan, you cannot choose to pay down the private/non income producing portion first. However, the good news is that the ATO has made an allowance for investors to refinance their mixed purpose account to separate income producing portion and private portion as you have mentioned before:

“Second Exception – Refinancing mixed purpose debt
18. A taxpayer may choose to refinance a debt outstanding on a mixed purpose sub-account by borrowing an equivalent amount under two separate accounts or sub-accounts. If the sums borrowed under those two separate accounts are equivalent to the respective income producing and non-income producing parts of the existing outstanding debt, we accept that interest accrued on the debt incurred in refinancing the income producing portion of the mixed purpose debt will be deductible.”

I would recommend that you consult with a tax professional before proceeding. It is always advisable to obtain your own private ruling from the ATO before relying heavily on random research, to avoid unnecessary pain further down the track. There is no value in risking misinterpretation.

Best of luck
Kenny

Note that comments made on this forum are of general nature and does not constitute personal advice. You should consult with professionals before taking action.

Hartfam,

Steve’s strategy is primarily +ve cash flow based, which may not be what you are after, if your objective is tax minimisation.
However Steve can give you insights and idea that will be beneficial regardless of your strategy.

your financial planner should be able to come up with a plan that suits your personal circumstance.
Besides strategy, you might want to ask about the optimal structure to “house” the investment and their pros and cons. (ie Individual, Company, Trust, etc)

In terms of where to invest, this was on the news the other day:
http://www.news.com.au/perthnow/story/0,21598,26084162-5013244,00.html

Best of luck
Kenny