I am on a superannuation pension ($1400/fortnight), own my house $360,000 a few thousand in the bank and have no debts. My wife is giving up work at the end of the year leaving us with only the pension as income. A friend suggested I mortgage my house, get a loan for our new house, rent out our existing house and negatively gear the loan on the new property. Is this reasonable information.
Hi Boothy
Since your current home is paid off, any finance you get on this property won’t be tax deductible. It is just like inceasing your loan balance. It depends on what the funds are used for. If you get a loan on your ex PPOR and use that to buy a new PPOR, then the interest won’t be claimable. But if it is used for deposits on investment property, then it would be claimable against that property.
One possible solution is to sell you PPOR to your trust. You will be up for stamp duty, but thinking long term you will be able to save a fortune. Do some calculations.
Terryw
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Terry,
Could you elaborate on the trust idea. I’m extremely green about these matters and would appreciate any help I can get.Cheers,
BoothyBoothy
You can’t increase your loan and claim the interest. But you could sell the home. So why not sell it to yourself – or an entity contrlled by yourself. And then the money you get from the sale is the proceeds of the sale of your PPOR and you can do what ever you want with it-put it into your new home etc. No capital gains tax as your PPOR is exempt. But you will be up for stamp duty About $11,600 in NSW on a $360,000 property.
If you just rented your house out as is, you would be paying lots of tax on the rent as you wouldn’t have any interest to deduct. In addition if you purchased a new PPOR then you would have a loan and would be paying interest with after tax dollars. You just have to weigh up the pros and cons.
Another option is for you to buy your spouses share of the property.
Better check with your accountant.
Terryw
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Boothy I think you are in a strong position to invest. You could sell your house and find a nice house to rent and try to negotiate a long term lease. Then invest some of your sale proceeds in quality brand new property negatively geared for near neutral cash flow. I suggest inner city brand new flats or units or townhouses. Stay well away from high rise big time ! I assume of course you pay income tax on your pension ?
If you rent for the next 5 years and acquire a brand new property each year, you will have 5 in 5 years and then you may want to sell one to restructure your debt into positive cash flow on the remaining 4. Then retire with you pension plus 4 cash positive properties all under 5 years old. This could put an extra few hundred bucks a month in your pocket. NOTE you would then be earning more and paying more tax, so you may want to buy another property to lower your tax burden. Thus you then have 4 cash positive properties and one cash negative property but one that is very tax effective being brand new.
I think 7 years is probably optimal I think they say as depreciation on internal fixtures and fittings ends after that.
just a thought for your situation. I’m still green at this really and this is just my hypothesis.
G’day hwd,
Ive noticed you mention a negatively geared property turning positive after a few years a couple of times now, I don’t understand how this could happen, unless maybe you’ve paid a heap more than normal off and maybe refinance to a lower ammount over a greater period of time.
I’m pretty green too, and this is an area that I really haven’t looked into. Could you explain the theory to me? Would’nt you be better off buying for high CGs and selling regularly (say every 1-5 years) to create cashflow, using the depreciation on the fixtures to help reduce the tax payable on the gains?
I’m a bit confused about this side of things.[
]Thanks,
Scott S
“Aim for the stars and you’ll shoot the top of the telegraph pole. Aim for the top of the telegraph pole and you’ll shoot yourself in the foot!”
-anon
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