Yes, there are a number of ways it can be structured. You will need legal advice on the foreign acquisitions and takeovers act and regs

Most lenders will treat guarantees the same as taking the loan itself for serviceability purposes so using a ‘trust’ will not help in this regard, but could hurt because any loss will not save you tax so negative gearing addbacks won’t help.

But careful structuring of a trust can also improve serviceability in other ways. I think I have written a thread about this on here somewhere.

Also you need to consider the other legal, taxation, estate planning etc issues with using trusts.

wow, what book did you read!??

What is the issue?

Transferring the property to a trust or declaring a trust over it will result in stamp duty and trigger a CGT event.

You don’t mention if your mother has passed away or not.

1. You won’t need a deposit if you are inheriting your mothers share of the property. As a guide roughly 6 times your annual gross income will be the max you could borrow.

2. Has probate been granted? Who is the executor?

3. Yes, ask for the terms of the agreement and a work out of their reasoning.

4. Legal advice might be a good idea as would credit advice if you are getting a loan.

5. Yes, you could do a few things potentially.

Forgot to add, these days brokers generally can’t even submit their own loans.

Well, the broker should give you reasons why you should do what they are suggesting and these reasons should be logical and backed up with reasons

e.g. why should you avoid cross collateralisation of securities? Because it gives the lender more power when things go wrong. This is because the lender will have 2 securities for 1 loan. Also it is totally unnecessary with the same amount of borrowings being achievable without crossing.

Lender choice is more subjective and the effect if you get it wrong is not so bad as you could move across to another lender (if can still service!).

11 Strategies for when you move out of the PPOR and keep it

There are several things that can be done to improve the tax situation of moving out of the main residence and into a new main residence while keeping the old main residence and renting it out. Often there will be large amounts of equity in the original property while the new property will be purchased with a loan and it will have non-deductible interest payments. On top of it the rent from the old PPOR will be taxable with little to deduct!

So here are some strategies:

Strategy 1: Sell First property

If you sell the first property you can then use the proceeds to pay down the non-deductible debt on the second property and then borrow to buy another property for investment.

Spouse A owns 100%

Spouse A sells to a stranger

Or

Spouse A and B own 50% each

Spouse A and B sell to a stranger.

Strategy 2: Sell First property to spouse

If the first property is owned solely by Spouse A it could be sold to the Spouse B.

Spouse A owns 100%

Spouse A sells to Spouse B

Spouse B owns 100%

This will allow the non-owner spouse to borrow to buy the property which will then be rented out. The interest on this loan will be deductible. The advantage here is that there would be no agent’s fees and the property can remain in the family.

The added advantage is that duty may be exempt in certain states – this needs legal advice. The property may also be exempt from CGT as well.

Strategy 3: Sell share of the property to spouse so there is one owner

Where the property is held jointly it may be possible for 1 of the spouses to sell their share to the other spouse so that the end result is that there is 1 owner.

Spouse A and Spouse B own

Spouse B sells 50% to Spouse B

Spouse B becomes sole owner

This can also be done where the ownership percentages are not even

Spouse A owns 80% and Spouse B owns 20%

Spouse B sells the 20% to Spouse A

Spouse A becomes sole owner

The purchaser would borrow to buy and thereby increase deductible interest while money release is used to pay down the new loan. Similar to Strategy 2.

This may also be exempt from duty in certain states but subject to duty in others.

Strategy 4: Spouse 1 Sell 50% to Spouse B and later sells other 50% to B

Similar to Strategy 3 above, Spouse A sells 50% to Spouse B now. The house is then jointly owned. Spouse A then sells the remaining 50% to B – just after or potentially years later.

Spouse A owns property 100%

Spouse A sells 50% to Spouse B

Spouse A and B become owners 50% each

Later

Spouse A sells 50% to Spouse B

Spouse B becomes sole owner

The advantage with this is reduced stamp duty in some states such as NSW. Instead of paying duty on 100% of the transfer you would only pay duty on 50%.

See Tax Tip 50: Minimising duty on Spousal Transfers Tax Tip 50: Minimising duty on Spousal Transfers

Strategy 5: Sell to a related trust

This is more complex strategy and there are many other issues to consider.

Spouse A and B own

Spouse A and B sell to the AB trust

AB Trust becomes owner

AB Trust borrows to acquire the property and would be able to claim the interest on the loan used to acquire the property as a tax deduction.

Spouse A and B are left with a pile of cash which they use to pay off their new PPOR debt.

This would be a CGT event – but if the house was the main residence it may be exempt from CGT in full. It would likely be subject to stamp duty though.

Strategy 6: Sell to a fixed unit trust with the original owners borrowing to buy the units

This strategy will incur stamp duty, but it allows the property to be retained and for negative gearing benefits to be achieved.

Spouse A and Spouse B jointly own a property

Spouse A and Spouse B sell to the AB Fixed Unit Trust

The trustee of the AB Fixed Unit Trust purchases the property

Spouse A and B borrow to acquire units in the AB Unit Trust

Because they have borrowed to acquire units which will produce income the interest on this loan will be deductible to both A and B.

If the trust qualifies there will be land tax savings too in some states. In NSW land tax could be assessable to the owners of the units so spouse A and B will get the land tax threshold.

Legal advice is essential for this complex scenario as are private ruling applications for both OSR and Land tax. I have received positive rulings for this done in NSW.

Strategy 7: Debt Recycle A

Use the rental income from the first property to help pay down the loan on the new property.

The original property should be positive cash flow as it would have low debt. This cash flow can be used to assist in the payment of the loan for the new PPOR.

The downside of this approach is that the income from the property will be taxable and the interest on the new PPOR loan will not be deductible. But you avoid the costs and hassle of transferring title.

Strategy 8: Debt Recycle B

Use the rental income as above. But access the equity to buy another property. After capital growth has occurred sell the other property and pay down the non-deductible debt

Strategy 9: Debt Recycle C

Once you move out you start borrowing to pay for expenses associated with the property – rates, insurances, repairs etc. Everything except for interest on the loan – but this may even be possible in some circumstances.

Strategy 10: Debt Recycle D

Pay down the new PPOR as quick as possible and borrow to buy income producing assets such as shares. The income from these assets can then be used to pay down the PPOR debt even more and more income producing assets purchased.

This may be done on using a loan secured by the old PPOR too. Security for the loan doesn’t matter, what matters is that you use the debt to pay off the non-deductible debt quicker.

Strategy 11: Planning from the beginning

If you are starting out into a PPOR then simply plan ahead. You may want to consider:

– Owning the property in just 1 name as this will allow the sale to the other spouse down the track;

– Borrowing 105% from the start as this will allow a higher loan to be retained and this will improve deductions once you rent the property out;

– Borrow on an IO basis as this will keep the loan balance high;

– Borrow to pay for all repairs and maintenance;

– Borrow to pay for property related expenses such as rates, insurances etc

– Capitalise interest where appropriate (get tax advice);

I thought he was borrowing to buy a house to live in?

If he borrows for another investment property the interest could be deductible.

Sorry I read it the other way.

If can still and should be structured like I wrote but the interest on neither loan would be deductible.
The amount of deductible debt won’t change and would be limited to the interest on the $120k loan (at most).

There are 2 aspects to consider
a) making the property your PPOR for land tax – which requires you to live in it for 6 months prior to the assessment date -30 Jun I think, so you would need to move in by 30 Dec and live there continuously

b) The absentee person test, probably won’t apply if you are living in the property for 6 months as that will mean you are in Australia and unlikely to be an absentee