Another new guy on the block [
]An opportunity has been brought to my attention and I would like some advice from those in the know. A lady, who owns her home in QLD, decided she wanted to relocate for a fresh beginning. She has taken a loan out secured against her home to build on another piece of land she owns. Her intension is to sell her current home upon moving into her newly built home, pay out her loan, and start a new life still debt free. I believe she was shocked by the amount of CGT payable on the sale of the 1st home (not sure the remaining funds cover the payout figure on the new loan)and is now considering keeping it as a rental. As she doesn’t really want the property I thought I might negotiate some sort of seller finance, and create a some what win-win situation(I have afew ideas on what I want to achieve). A few questions [
]1) as she is still selling the house does she still pay a CGT even though she is now the morgager?
2) will she pay tax on the income she receives as the morgager or, as esentially it is money borrowed from her, not rent, is the tax avoided so that she can pay down her loan with the money she receives monthly through the private finace
Any opinions on how best to approach this and what to pitfalls may be lerking would be appreciated.
DL
PS sorry if these questions are a little nieve … gotta start somewhere [^]
Danczer, your first post and no one has replied[
] I’ll have a go for you… (and no the questions are not naive my friend – it sounds like you have a nice opportunity to create a win/win solution here.)My first query is: Why does she have to pay any CGT when she is selling her own home (principal place of residence)? It is exempt from CGT, and obviously if she is building on her new block she can simply sell her current home, THEN move into the new one (so there is no issue of the new one becoming her PPOR before she sells the current one).
However, if there is some CGT event triggered on sale (for some reason) then my understanding is that she must still pay CGT either way (not sure of the timing though if she is mortgagor, it may be deferred whilst she still retains title and you are paying it off – this is a question I would like answered myself).
She would basically be wrapping the property to you, so the payments you make to her would be taxable to her. Normally she would be able to offset this with the interest payments on her own loan but this is where she/you will need to confirm with her accountant as I suspect this may in fact be denied because she has borrowed against the home in order to build her new home (which will not provide any income, and hence the loan interest is not deductible). I could be mistaken – you need some really good advice here. Has anyone out there wrapped their own home to someone else and may be able to add to this?
My tip would be to do your numbers first, make sure the deal is worthwhile based on your anticipated outcomes (eg what can you rent it for and is it positive cashflow). You also need to be clear about how you get an income from all of this…(you don’t mention it above) will she stay in this house until her new one is built and pay you rent, or will you have a new tenant (gets rather complicated as really you are the middleman and she is potentially the seller and tenant, I had to draw a diagram!)
Let us know what happens [
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] I’ll have a go for you… (and no the questions are not naive my friend – it sounds like you have a nice opportunity to create a win/win solution here.)
]The topic ‘Seller finance / CGT?’ is closed to new replies.
