Forum Replies Created
With the way the Australian tax system works on self-assessment, there is nothing really stopping them from claiming even if fraudulent. However if they are audited by the ATO and found to be falsely claiming interest, there would be at the very least extra tax to pay for all corresponding years that they were claiming, interest charges for shortfalls accrued, and penalties for the false tax returns. There might even be civil or criminal legal matters.
Are they willing to take that risk?
Cheers
Tom
Ailime, basically once the principal has been paid off whether through normal P&I repayments or extra repayments into a redraw, you have lost the ability to use it for deductibility purposes. You cannot "gain" it back (unless it is taken out for investment purposes). Hence why in my opinion an offset account should always be used instead of redraw.
As Jamie mentioned, best option for them is to change the current loan to IO so that they maximise their deductibility going forward (i.e. not lose any more principal).
Cheers
Tom
That is correct as the $160K or so in the sub loan would only be deductible for the first two years, while the same amount would be deductible after that for as long as you then held onto the property as an investment.
There is the other option similar to what Richard mentioned but in addition you could take out equity against you current property to the maximum of 90%. Would give you about $80K on your current property estimate which you could put towards the new IP which would be tax deductible for those 2 years. When you decide to move into it, then you can just pay down that $80K split, and it would still leave you the $340K outstanding for future deductibility. Doing this would incur LMI so just as mentioned previously, you would need to run the numbers to see whether it would be worthwhile.
Cheers
Tom
Hi Ailime,
Your friends and accountant are incorrect (I would be wary of using one who didn't know this).
The interest on the existing PPOR loan minus the redraw would be the maximum they would be able to claim (assuming it didn't include any other personal borrowings). If they want to use equity to finance a new PPOR they should do it a a split to separate the existing loan from the new borrowings.
This is something that I could find on the ATO website under unable to claim : http://www.ato.gov.au/content/00113233.htm
Cheers
Tom
As Jamie mentioned, you're most likely going to be charged some type of variation fee for the change, and any accrued amount of interest that hasn't been paid would be added to the loan amount at the time the loan documents were done in the first circumstance.
Cheers
Tom
Theres nothing stopping you trying to restructure from a P&I loan to IO. Most likely you will need to provide updated financials to the lender.
If you have a $300K interest only loan, and you have $300K in an offset, then your monthly repayment reduces to zero.
Cheers
Tom
Similar to Jamie's suggestion above but if borrowing capacity doesn't allow, there is the option of a relocation loan based on end debt and interest capitalisation. Gives you time to sell your current property, the caveat being that if you don't sell within the prescribed time, you are required to start repayments on the total debt.
Cheers
Tom
You need to get seek professional assistance on this, but from memory if your sole intention is to use the land to build property to rent out, then the loan interest is deductible even if nothing has been constructed yet.
Think there was some tax ruling on it years back.
Cheers
Tom
Not necessarily. Have had an investment in Broadmeadows (Jacana) for 13 years now, and in that time only had two different tenants in there and no real issues from them.
The area and surrounding suburbs had some nice growth 3-5 years ago, but that halted much like the rest of Melbourne.
Cheers
Tom
I think I understand what you were attempting to do with regards to the $150K. You were thinking that your partner could buy half the apartment property at $150K and take out a loan for it, with the fund proceeds being used for the deposit on the new property.
Unfortunately it doesn't work like that. If she did take out a loan for $150K, with an existing loan of $240K on your part would make it $390K in total, and with a property value of only $360K, the LVR is over 100%. What would happen is that if she did take out the loan, your part of the $240K would need to be paid down with these funds, so you would basically be back to square one.
Cheers
Tom
Opee, like Jamie mentioned, bank valuations are normally done by independent valuers on the lenders panel. The purpose of it is to come up with a value the lender could foreseeably be able to receive if it had to call in the loan. How accurate are they? As you see with the different valuations, there is a big difference between the two you have received. Obviously one of them is totally incorrect.
Has there actually been any recent sales in your area that you can compare that maybe the valuer didn't find?
Cheers
Tom
Not too sure about other states but in Victoria, the rates notice shows Site Value which is the land value, and the Capital Improved Value which is the land plus building. How close these values are to actual valuations that lenders would come up with is very debatable.
Cheers
Tom
Freckle wrote:Wilko while I understand your angst I don't think the price is too far off the mark.Labour rate is actually pretty reasonable. Charge out rates for tradies have been around $90/hr for the last 10 years or more. Plumbers are the most expensive trade next to sparkies. The hours worked are about right. I notice there's no machine time listed. Generally a digger will go out around $300 – 500/day.
Sure they've over charged on materials – who doesn't.
The problem as I see it is that they've balls'd up the quote and the final price has exceeded your expectations leading to an I want to kill some body moment.
The other problem I see is that as I read it you were given an estimate not a fixed price quote. Biiiig difference me ol' mate.
I'd ask for a discount which is the best I think you could get. Maybe $200 at most. Take it on the chin, lesson learned which is GET FIXED PRICE QUOTES.
So if they're unwilling to be friendly you can claw a little satisfaction back by dragging out payment for ever as a reminder to these guys that financial pain can be a 2 way street.
Best I ever did was 5 years.
Now this really has me intrigued. If you don't mind divulging, I would love to know the story behind it.
Cheers
Tom
As others have mentioned, it will be very difficult to place a deal at 90% with an unpaid debt. At a much lower LVR it starts becoming possible, but even despite this, the interest rate is high.
Best option is to repay the debt. This makes it appear that you are willing to pay off your debts and makes the lender much more prone to lending you money.
In terms of your credit file, you need to ascertain whether it is listed as a default or clearout. Defaults are listed for 5 years while clearouts are listed for 7 years so it might be on there for longer than you think.
The other thing to note is whoever the credit card is with, you won't be able to borrow from that lender again, even when the debt is cleared off your credit file. They will have that on their files forever.
Cheers
Tom
Just be aware that when doing the numbers, you need to add in the other expenses like management fees, rates, insurance, etc to come up with a more accurate out of pocket cost.
As for the offer, yes you can put in an offer with having any approvals in place, however if accepted you should have the usual subject to finance and pest and building clauses put in the contract.
Cheers
Tom
Hi Yasman,
The purpose of the loan is what determines deductibility, so just transferring it to an investment property doesn't automatically mean it will be deductible.
From the above it seems like spousal transfer is an option for you. This is where you can transfer the ownership between either one of you due to your relationship, and since you are from Victoria pay no stamp duty for the transaction.
Assuming that the current unencumbered property (say it's worth $600K) is split between your wife and yourself it would work something like this.
Your wife or you would buy the remaining 50% interest of the property from the other at market value ($300K). This happens by taking a loan out on the property and paying the other person the funds. If the property is rented out this loan now becomes deductible. The funds can be used by the other person to pay down the loan on the new property that you want to live in reducing that mortgage to $250K. So by the end you have the same total mortgage, but now some of it is deductible.
If the unencumbered property was owned fully by one party, then you can do a 100% transfer and borrow more deductible debt.
Cheers
Tom
Hi Richard,
You might be incorrect there. I think if you are divorced/separated and haven't had an ownership interest in residential property before (i.e. spouse owned outright) then you might still be eligible for FHOG.
Either way I suggest that Jasmeet contacts her relevant State Revenue Office and asks them about her scenario.
Cheers
Tom
