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  • Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 16,213

    Here is an article that I wrote a while back:

    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);

    – Live in victoria as this will save you stamp duty in the future if you ever sell to each other.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of TerrywTerryw
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    @terryw
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    Post Count: 16,213

    Refinancing you will earn the broker a commission so they are biased. Ask them to justify why you should move lenders – it may make sense because of a lower rate, etc.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of TerrywTerryw
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    @terryw
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    You won’t legally own the property until settlement.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of TerrywTerryw
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    @terryw
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    Mortgages should not be confused with loans. A mortgage is a security over property. This differs greatly from coutnry to country even those with similar laws such as England and Australia.

    A loan is the borrowing of money and is often secured by a mortgage. Lending requirements also differ a lot from country to country. Australia is generally more lenient than others from what I can see.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
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    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of TerrywTerryw
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    @terryw
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    You should probably ask in that thread.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
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    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of TerrywTerryw
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    @terryw
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    Hi Terry,
    Can I ask will the Gift and Borrow back strategy trigger stamp duty ( say gift the equity in the house to the trust and borrow it back)? Or without stamp duty occurring, will the Deed of gift be legally valid?
    Thank you.
    Elysia

    How do you gift equity to a trust?

    A gift has to be delivered to be legally valid. If you are transferring cash it is not a dutiable transaction.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
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    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of TerrywTerryw
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    @terryw
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    See this thread, another guy with the exact same question:
    https://www.propertyinvesting.com/topic/5037398-buying-a-mortgagee-in-possesion-2

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
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    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of TerrywTerryw
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    @terryw
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    Hi,
    I just made an offer for a property which is currently a mortgagee in possession. The agent had told me that since we are dealing with the bank as the seller, it will be sell as it is. I asked the real estate agent if we can do a building and pest inspection before the offer but he declined and told me that we can’t do that in this transaction. I would like to know if this is legit? If there will be any supporting reference to my claim?
    Kind Regards,

    To do a building and pest inspection you will need permission to access the building. The vendor may or may not give this. The vendor is in their right to refuse.

    It is also true that the bank may not be inclined to negotiate as they want a straight sale.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of TerrywTerryw
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    @terryw
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    1. If the trustee has this power. Read the deed and the relevant trustee act
    2. Probably not
    3. Depends on the above. Tell ATO on the next trust tax return.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of TerrywTerryw
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    @terryw
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    AS Benny says best to move into it straight after purchase and then rent it out. This way you can claim the 6 year absence rule to treat it as your main residence while it is rented out – which could mean you are keeping it CGT free.

    But if you didn’t do this all is not lost because the CGT will be worked out on a time basis if you later move in. The longer you live there the lower the % subject to CGT will be. Furthermore you can claim most expenses incurred while you live there off the capital gains when you eventually sell – this includes interest, insurance, rates etc. So although CGT may apply there may be no or little tax payable in the end.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of TerrywTerryw
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    @terryw
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    Renting where you live and investing in property.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of TerrywTerryw
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    @terryw
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    Who suggested you sell your share and why?

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
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    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of TerrywTerryw
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    @terryw
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    I haven’t seen the draft legislation, but my understanding is no travel will be claimable from a certain date – 1 July possibly.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
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    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of TerrywTerryw
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    @terryw
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    Hi guys,
    Sorry to bump this old thread but I am trying to work out my situation. I will probably speak to an accountant before making a decision but just some advice in the interim would be great.
    Bought PPOR (Property 1) in 2009 lived in until 2013 at which point we moved out, rented it and purchased another property which became our PPOR (Property 2).
    Now in 2017 if I was to sell property 2 claiming it as my PPOR for CGT purposes and move back to Property 1 for a few years before selling it, would I
    1 – need to pay CGT on the total gain from time of purchase.
    2 – Pay CGT for on the gain between the first date of renting and the date of moving back.
    Thank you, Anthony

    1. no
    2. no

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
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    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of TerrywTerryw
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    @terryw
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    1. Assuming Part IVA is not used by the commissioner to deny the deduction, and you structure the legal documentation correctly it would be $150k plus $45k

    2. Yes, but you should use a lawyer as many other legal issues.

    3. are you licenced, ABN and insured?

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
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    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of TerrywTerryw
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    @terryw
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    This sort of will be hard to find unless you have a property to secure it against. banks may lend under commercial funding using the reno proeprty as security but it would generally be costly.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
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    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of TerrywTerryw
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    Interesting topics. At broker’s advice, about 7 years ago, I take the portfolio loan from bank of melbourne (line of credit), interest only loan but without any time limit. However, the charge is that you have to pay higher interest rates. I am thinking how can I reduce the interest rate with bank without change the structure.

    The only time you should use a portfolio loan is to access equity temporarily. Once it has been drawn down it would be best to convert the loan to a term loan interest only. Lower rate and less risk.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
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    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of TerrywTerryw
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    There is no minimum time.
    See the legislation at http://www.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s118.192.html

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
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    Profile photo of TerrywTerryw
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    There are several things you could do
    a) claim the 6 year rule on the current main residence when you move out. It could be totally cgt exempt.

    b) rent the current one out and get the cost base reset to market value at this time and then later sell. Probably minimal to no CGT on this one

    c) pay CGT on the existing and then treat the new one as the main residence for up to 4 years prior to moving in.

    You just have to weigh up which would be better for circumstances.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
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    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of TerrywTerryw
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    @terryw
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    get some tax advice, you might have to make a family trust election to be able to carry forward the loss.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

Viewing 20 posts - 701 through 720 (of 16,319 total)