Hi All,
Hoping to get some advice and learn from all the knowledge/ experience on the site.
I am 25 and looking to invest further. I purchased a 1bdrm apartment in January 06 (New Farm- inner city Brisbane). I purchased under the FHOG and I am considering renting out following the 12month period (ends Jan07). I have an IO portfolio loan and have paid minimum IO payments to ensure I take advantage of future tax concessions available.
I am recently engaged and will need to look to a larger place in the near future. I have a good income (100K+) and I would like to purchase the next upgrade, however I have not saved enough and do not have sufficient deposit. In addition to this, I am against paying off a non- deductible mortgage. I am not emotionally attached to living in my own home, however I would really like to avoid paying rent if possible. I also know my fiancé would prefer to live in our own home.
My question:
* Is there a way to live in a tax deductible home?…..I have read a little on trust structures, can a trust purchase the home and can we then rent the property from the trust?To open up options, I should be able to source finance for a deposit via a family member – I would prefer to structure the loan so that it also becomes a tax-effective investment for that family member.
Or is it simply best to rent (less than the invest property rent), use the unit as an investment and save ( and access any future equity) for the next investment property. And just live with the rent situation…?
Any ideas, assistance/ guidance welcomed
Thanks
CPYou’re 25 and earning over 100k? Stop it – you are making us all jealous!!
Together with your wife’s income (I’m assuming she has one here) you should be able to save a deposit in no time if you don’t blow it all on ‘doodads’. Of course, the cost of the house you want to live in will be a critical factor.
If your loan permits it, paying off non-deductible mortgages/loans should be your first priority in my opinion. You want to minimise your personal debt as fast as you can to save on all that horrible non-deductible interest (own home and cars etc). While you are living in your unit the interest is not tax deductible.
This will accelerate your equity in your property, and help you with the LVR on future loans for investing.
It may be adviseable to look at setting up a split facility line of credit loan when you are purchasing your PPoR – one sub-loan for the PPoR and one sub-loan for the I.P. this makes the accounting part easier.
To answer your question; I think you need to get professional advice from a suitably qualified accountant regarding the buy/rent back strategy. I know people do it with commercial properties – they buy a property and rent it back to themselves through a company structure or vice versa, but I don’t know finer details.
You can do a Joint Venture with your family member – they provide a percentage and so do you and the income/expenses are allocated to each party according to the percentage split. You shold be able to source a JV contract through solicitors or even from this site.Cheers,
Marc.
[email protected]My question:
* Is there a way to live in a tax deductible home?…..I have read a little on trust structures, can a trust purchase the home and can we then rent the property from the trust?The answer according to the ATO is no. Part IVA “dominant purpose test” could be applied. Read tax rulings for their application but also for ATO culture and attitude.
The other answer is to decide on day one what is your appetite for risk. If you want reliable safe strategies then you will be attracted to a certain type of adviser who will advise caution and patience. If you want to push the envelope then another type will appeal. Consider the downside if the strategy is unacceptable to the ATO.
IMHP caution and patience with careful tax planning is a better option. You can concentrate on maximising the potential in PPR exempt CGT, super salary sacrifice and other FBT exemptions for salary sacrifice (e.g.ESOP (employee share ownership). In other words go with the flow and use opportunities presented and endorsed by ATO for pre tax savings. Accumulate pre tax dollars wherever possible and in the mean time do not accumulate non deductible interest loans.
It is limited as to what you can do with a DIY super fund for related transactions but otherwise a super fund is a good place to accumulate wealth and later perhaps buy an IP. Start with master trust and then when capital is sufficient do you own thing. I know this answer is slightly off topic.
avanti lawyers
Hi CP
One way to do it is buy a place, live in it, and then rent it out – as you are going to do. Living in a place is costly, but renting the same place is usually much cheaper. Compare the mortgage on a $400,000 unit with hefty strata fees to renting that unit. Sometimes 50% difference.
But did you know you can still claim the place being rented as your main residence? And this can result in nil CGT if sold? See s118.145 of the ITAA,
http://www.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s118.145.htmlSo you can sort of do what you wanted to do. You can still claim the interest on your home loan, but just not live there. You can then invest the extra money you are saving by paying a lower rent.
Terryw
Discover Home Loans
Parramatta
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Thanks all for your comments and feedback. Appreciated
This forum is a great source of information. I will continue the research.
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