Hi I am interested in buying a new ppor. But my current ppor is interest only value about $540k owing $200k this is linked with a IP crossed loans.
How can i tranfer the equity from the current PPOR to my new PPOR so i can pay off my new PPOR quickly without having a big non deductible debt on it.
Should i transfer it into a Trust and then redraw what equity i can is there another way around this. I will assume that i can afford all the expenses. just want to get some ideas how to buy a new ppor without borrowing the whole lot again.
thanks
Hi,
I'm not sure I understand your question fully, but I'll have a go at answering it for you.
First of all, if you want the interest to be deductible, then it won't be a PPOR (CGT free), but rather an investment property.
Tax law requires that there be a connection with the earning of income and the expense, and the expense cannot be of a private nature (i.e. a home).
So, you will need to create a valid investment model, which can be negatively geared. That is, you will need to charge and pay a market rent. Whether you create a seperate investment structure to do this is up to you.
A possible model then would be as follows:
1. Buy new PPOR in a new structure. For discussion sake, let's say you set up the 123 Family Trust to buy it in.
2. You buy the property (let's call it 123 Smith Street)
3. You refinance your current PPOR to pay for the deposit and closing costs. The interest on this redraw is deductible provided 123 Smith Street is an investment property (even if it makes a cashflow loss).
4. You get an 80% loan for 123 Smith Street, offering the title up as security. Assuming you are either the Trustee, or director of the Trustee company, you will be asked for a personal guarantee. The interest on this loan will be tax deductible too.
5. You will need to pay a market rent to 123 Family Trust. You may offset this cost by potentially renting your current PPOR for a short time without compromising the CGT status of it. You will need to see an accountant about this.
6. When you sell 123 Smith Street, any capital appreciation will be subject to CGT.I hope this will help get you started. I really think you need to see an accountant. I would also say that this is a highly leveraged strategy, meaning you are borrowing a lot of money. This often carries a lot of risk.
Cheers,
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Hi Post
To a certain extent i agree with Steve but think there are other issues to consider first.
With your current structure the loans are crossed collateralised and it does not matter what you do this will not change unless you instigate an action plan.
What you need to do is free up the equity on your current PPOR by having the IP securities stand alone.
Then you need to consider selling your current PPOR to a Trust structure but you need to weigh up the additional costs triggered in this action. This will include stamp duty and how long it will take to get back. Work out your marginal Tax rate and divide this by the Capital cost.
Also look at whether holding the property in Trust will mean more Land Tax each year.
Your mortgage broker should know his way through the securiity issues and guide you through the process.
Richard Taylor | Australia's leading private lender
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