I own a good proportion of my home due to the massive rise in price of real estate lately. I have made an offer on an investment property and have a loan all but approved.
Is there a stucture or technique in Austalia that I can move my primary residence to the investment property in the near future and convert my existing home to a fully functioning (tax advantages)investment property. I dwant to avoid at all cost having to sell my current home as it has the abilty to have three rental incomes with some development. The new investment home would be better suited to my family.
I am happy to pay changeover costs if say, stamp duty was involved in the tranfer process.Hi Snow, Yes you can switch between renting a property and living in it and VV. You will be liable for capital gains tax on each property in proportion to the number of years it was an IP Vs the number of years it was a PPoR. Any mortgage you have for your PPoR will become tax deductible when it becomes an IP. Noel Whittaker often mentions this. His recommendation is that you keep your PPoR loan interest only, and direct any excess money into an offset account, so that you have maximum loan on the property when it becomes an IP, and your money in the offset account goes towards the new PPoR. Any loan on the current IP becomes private only as soon as you convert it to a PPoR of course.
HTH, J.Just one other thing snow, don’t forget that you wll need to inform the Office of State Revenue of your change in PPoR, (if you are above the threshold for land tax that is) as it will affect your land tax (your PPoR is exempt).
JI just stumbled across something relevant in the ATO Tax Guide.(great light reading not!) Snow, if you are intending to move to your new property within 6 months of its purchase, both properties will have PPoR status, ie your new property will not be subject to CGT based on its first <6 months as an IP if it is eventually sold. Best to check with your accountant though.
JIf your loan is very small and you start renting out your old home it will probably be positively geared and you will be paying tax on this ‘profit’.
If you then buy a new home and borrow most of the money, then you will be paying lots of interest on your new home. To make things worse, this is not deductible.
You could increase the loan on the original home and withdraw the money to pay down the new home’s loan, but the interest on this would not deductible as the ATO regards this exenditure as of private nature, ie not for investment purposes.
One way around this is to ‘sell’ your old home to a trust (that you control). Since it is a sale you will be able get a loan upto 90% of its current value. this will be deductible as the purpose was to purchase an investment property. Stamp duty will be payable, but CGT would not as it is the sale of your PPOR. The proceeds from the sale could then be used to purchase your new PPOR.
This way you can increase your tax deductions while freeing up your equity to reduce your non deductible debt.
Does that make sense? make sure you check this with a qualified accountant first!
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
Doogs, this is what my accountant has told me today, before I read your comments, thanks so far. When I move from my current PPoR, into the investment property, I will be unable to make any tax deductions on the investment property because it will become my new PPoR. This makes sense to me. The trap that I am being advised is that my current PPoR when it is rented, will not be able to have any deductions. On top of this, all rent will be income and taxed at my marginal rate. Therefore with no deductions now on either property and income tax on the rent of my original PPoR, I will be hit very hard. Which parts of the above sound right? Is there somewhere you, or anyone, can direct me for the facts on correctly making this move. CGT to me is not an issue, it is a consequence of government rules and therefore unavoidable. Great to here your comments.
That’s all very correct Snow. I was just assuming you may still have some mortgage on your PPoR, which would become deductable. As Terry wrote, you need to sell your PPoR if you really wish to move to your new property, and can’t afford the non deductable loan. You could then buy a new IP of course, it all depends on how much you want to move, ie if the extra cost (Stamp Duty, RE commission etc) is worth it.
J
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