Interested to hear people’s thoughts on this. It may already be covered in this forum & if so, much appreciated if someone could provide me with a link. Anyway I’ve been trying to work out how I can access equity from IPs to purchase a PPOR (if/when I decide thats a good idea) because any loan draw downs to buy a non-income producing asset is not tax deductible. The only solution I see is to sell the IP then use the profits (equity) to purchase PPOR. With that theres the CGT issues and also most investors advocate a hold and re-draw strategy rather than sell the IPs. Was thinking maybe there might be a funky structure out there where I somehow interpose another entity/structure in that whole process. Moving on from that if I did acquire the PPOR then I’d like to trade up or move to another PPOR, I’d also need to sell up because any additionaly equity drawn down will not be tax deductible. Basically some experts advocate buying IPs to buy your PPOR so I want to be able to buy the PPOR with equity I have built from IPs w/out selling. If I’m not analysing it right, then please pass your comments over but maybe I simply can’t have my cake and eat it too?? Thanks in advance.
It is not an issue. It is the ‘purpose’ of the funds that determines deductibility. It doesn’t matter which property is used to secure the money against.
It is strongly recommended that you do not mix up deductible and non-deductible expenditure as it will cause difficulty at tax time.
Also, on your PPOR, I would recommend using an offset account and paying interest only on the loan and placing all additional funds (at least the extra you would have paid if the loan was P&I) into the offset. You will be able to deduct the whole loan amount later if you move out of the PPOR and make it an IP.
Good luck with it all and use a mortgage adviser / broker!!!
Robert Bou-Hamdan
Mortgage Adviserasdf
Are you trying to ask how could you use equity from the investments to buy a home and have the interest deductible?
If so, then you I beleive cannot unless you sell (=stamp duty, CGT etc). If owned jointly wiht a spouse, you could look at possibly buying his/her share and borrowing to do so. The money released could be used to pay for the PPOR and the investment loan would be higher. This may be possible in some states without paying stamp duty, but I am not sure on CGT.
Terryw
Discover Home Loans
North Sydney
[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
Hi Terry,
I think asdf wants to use the equity in the IP, if that’s the case then a split loan would do the job, Cheers.Regards
Steven
Mortgage BrokerMobile Mortgage Market
Ph: 0402 483 216
[email protected]
http://www.mobilemortgagemarket.com.auPLEASE note comments made should not be taken as specific taxation, financial, legal or investment advice.
Hi guys, Thanks for both your responses. I think I do want that cake and eat it too. I really want to access that equity but have that equity be tax deductible also. I think Terry may be right, the only way to do that is either to sell or with the joint borrowing scenario. I suppose the trick is to increase the IP loan and for the increase to be a good (deductible) debt. However it won’t be if the equity is used to buy PPOR. Robert, i need to investigate that offset structure a little more perhaps offsetting interest may achieve the same economic outcome? Thanks again guys.
There is another much more simple way. You buy the property in the name of a different entity – eg: company or trust – and rent the property from the entity at market rent.
This is fully deductible!
Funds raised from yourself can be lent to the structure you use and you could possibly charge a higher interest adding further to the deductions.
I am not an accountant so please run this by your own accountant.
The Mortgage Adviserhttp://www.themortgageadviser.com.au
I’m not 100% certain, but what if you purchased the new property in a Trust and then rent the property from the Trust,
If this scenario were possible then the equity from the IP and the remaining portion of the loan on the new purchase would be deductible debt,One of the problems with this scenario may include, The IP may have to be transferred in to the trust in order for the Trust to access the equity in the IP, Cheers.
Regards
Steven
Mortgage BrokerMobile Mortgage Market
Ph: 0402 483 216
[email protected]
http://www.mobilemortgagemarket.com.auPLEASE note comments made should not be taken as specific taxation, financial, legal or investment advice.
Snap Rob, great minds think alike.Cheers.
Regards
Steven
Mortgage BrokerMobile Mortgage Market
Ph: 0402 483 216
[email protected]
http://www.mobilemortgagemarket.com.auPLEASE note comments made should not be taken as specific taxation, financial, legal or investment advice.
I have set up my own structures like this in the past using a company. It worked well for me but I believe using a trust is better when considering deductibility and asset protection.
I was leaning towards the trust setup but have since decided to pull out of nearly all direct property investment and invest indirectly.
The Mortgage Adviserhttp://www.themortgageadviser.com.au
Hi guys, thanks for the ideas. I know my accountant is a bit conservative and not too IP savvy (time to change accountant me thinks..) so not sure if she’ll be confident on the draw down equity from IP, loan to trust on a higher rate part for trust to then acquire IP (with added borrowings). I think the rent from trust part (as long as its market rent) should work but does it work better if its a company trustee compared to a personal one? I know some lawyers have issues with contracting with oneself even if you are acting in capacity as a trustee. (I only have a disc trust with personal trustees so will need to set up a corp one). Has anybody’s accountant advised otherwise?? Obviously I’m not asking for advice but just general banter. Might sit down and actually throw some real numbers into it and weigh it up against the PPOR CGT exemption. Then again I’m looking in Syd so theres probably not going to be much CG for a couple of years yet and market rents are half the size of mortgage repayments. Thanks again guys. Much appreciated.
I use a corporate trustee as it seperates the entities and offers an additional level of asset protection.
The Mortgage Adviserhttp://www.themortgageadviser.com.au
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