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sweeny
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@sweeny
Join Date: 2010
Post Count: 9
September 12, 2014 - 11:59 pm
Hi,
Apologies for resurrecting a three-year-old thread, but it’s now 2014 and I’m looking for a buyer’s agent in Brisbane to help me locate and purchase an investment property (I live interstate). Does anyone have any current recommendations?
sweeny
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@sweeny
Join Date: 2010
Post Count: 9
August 18, 2011 - 10:59 am
Jamie M wrote:
sweeny wrote:
Hi Shape, Are you able to go into more detail about the tax-deductibility of Loan 2? My understanding is that Loan 2 would be treated as new borrowings, and its tax-deductibility would be determined by what you used the funds for. If you used the $100k to buy an IP, it would be deductible but if you used the $100k for personal expenditure it wouldn't be. Is this correct? Also, are you able to explain the other 2 common ways you mention to make Loan 2 tax-deductible?
Hi Sweeny
Correct – it looks like you've answered your own question
Cheers
Jamie
Thanks Jamie,
How do you manage the cash out from Loan 2, before you use it to fund an investment? Correct me if I’m wrong, but I would guess the following events would occur:
1) Loan 2 is approved, secured against existing property
2) Lender deposits $100k in a specified bank account
3) At some point, some or all of the $100k is used to purchase another investment
The things I am unclear about are:
A) How do you prove to the ATO that the $100k you obtained in step 2 was used to fund the investment in step 3, if they do not happen in the same transaction (an they could potentially happen months apart)?
What do you do with the interest on Loan 2 before you purchase the other investment?
C) Let’s say the other investment requires $80k in cash, so of the $100k borrowed as part of Loan 2, you invest $80k and leave $20k as cash sitting in an account. Is 80% of the interest on Loan 2 is tax-deductible? Is it possible to make the other 20% tax-deductible?
Given all these concerns it seems to me that it would be simpler to set up a LOC on the existing property for $100k, so when you want to purchase the other investment, you can just get all of the costs drawn straight out of the LOC at the time. What are the advantages gained in using the standard equity release/standard split loan over a LOC?
sweeny
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@sweeny
Join Date: 2010
Post Count: 9
August 16, 2011 - 11:29 am
Shape wrote:
siraitken wrote:
Shape,
In this example is the interest on Loan 2 tax deductible?
If not, what alternative solution would you recommend if you still needed the $100k for a IP deposit?
Regards,
Dave
It is.
There are many ways to achieve a similar outcome- it all depends on your overall LONG term goal and objectives ie planning a construction? wanting to buy it in a trust etc…the above example is one of the 3 common ways to make Loan 2 tax deductible.
Hi Shape,
Are you able to go into more detail about the tax-deductibility of Loan 2? My understanding is that Loan 2 would be treated as new borrowings, and its tax-deductibility would be determined by what you used the funds for. If you used the $100k to buy an IP, it would be deductible but if you used the $100k for personal expenditure it wouldn’t be. Is this correct?
Also, are you able to explain the other 2 common ways you mention to make Loan 2 tax-deductible?
sweeny
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@sweeny
Join Date: 2010
Post Count: 9
February 11, 2011 - 9:46 am
I am currently looking at NRAS properties and would be very interested to know if someone receives any official word from the ATO on this.
sweeny
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@sweeny
Join Date: 2010
Post Count: 9
September 14, 2010 - 3:09 am
Terryw wrote:
see s 8.1(1) of the Income Tax Assessment Act 1997
Thank you!
sweeny
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@sweeny
Join Date: 2010
Post Count: 9
September 13, 2010 - 3:43 am
Terryw wrote:
The purpose of the loan is to buy the house. When the house is being lived in this interest is a private expense, when being rented it is a investment expense.
Hi Terryw, do you have a link to a .gov.au website to support this? I am still not 100% convinced.
sweeny
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@sweeny
Join Date: 2010
Post Count: 9
September 11, 2010 - 7:50 pm
Okay, I understand that if I buy a property and live in it for 6 months, then move out and rent it out for 6 years without buying another property, I can get:
– $7k via FHOG [http://www.dtf.wa.gov.au/cms/uploadedFiles/_State_Revenue/FHOG/FHOG_Fact_Sheet.pdf]
– a stamp duty exemption/reduction via FHOG [http://www.dtf.wa.gov.au/cms/content.aspx?id=2011]
– an CGT exemption for the full 6.5 years [http://www.ato.gov.au/individuals/content.asp?doc=/content/36887.htm]
However, I am confused about negative gearing/claiming rental losses as an income deduction. If I live in the property for the first 6 months, I would assume the purpose of the loan would be considered as to buy a PPOR. When I move out and start renting the property out, the property is now an IP. However, the original purpose of the loan was for a PPOR, so doesn't that mean that I cannot claim the interest as a deduction (fail the purpose test)?
Can someone please help?
stevo81 wrote:
I think you can do this. I have found a lot of lenders dont like you taking out IO loans for PPOR, this isnt to say it cant be done. You can also avoid CGT if you move back into your investment property within 6 years. You just need to live in it again for atleast 6 months and not purchase another PPOR.
Terryw wrote:
There is no transfer required if you wish to change your property into an investment. You simply move out and rent it. Not really a loop hole in my opinion as the requirement for the FHOG is to live in the property for at least 6 months. As long as you do that you are abiding by the regulations.
sweeny
Participant
@sweeny
Join Date: 2010
Post Count: 9
September 10, 2010 - 12:09 pm
Thanks everyone, your posts have been extremely helpful!
I was intending to get a pre-approval for an IO loan with a 100% offset account. It is likely that I will take a reduction in salary in the near future, and I want pre-approval based on my current salary. Also, I am currently spending a lot of time overseas, and wanted to reduce any hassles (such as obtaining finance approval) if I spot a property suitable for purchase in one of my short trips back to Australia. Is getting pre-approval advised?
Also, should I tell the bank that my intention would be for the property to be a PPOR for 6 months, and then an IP after that?
Terryw wrote:
There is no transfer required if you wish to change your property into an investment. You simply move out and rent it. Not really a loop hole in my opinion as the requirement for the FHOG is to live in the property for at least 6 months. As long as you do that you are abiding by the regulations.
Are there any specific pieces of paperwork you have to keep to prove that you were living in the property before a certain date, and then not living in the property after that date?