Looking at building a new home within the next 6-12mnth(have engaged an architect).
The new home may cost $500,000 to build.
–– Have an investment property loan for $20,000 and property worth $300,000)
What I would like to know, am I able to access the equity in our Investment Property to assist with the new home cost?
For example, increase the investment loan from the present $20,000 to $200,000 and the $180,000 made available from this can be put against my eventual increased home loan.
For ATO are we able to realise equity in our investment property to assist in what I have described above and still negative gear the property at the new amount.
Thanks in advance for any suggestions.
Hi PK
You can certainly access the available equity in your IP but the interest will not be tax deductible as it fails the ATO "Purpose Test"
One consideration would be to look to sell your IP into a Trust structure borrowing the total loan amount and therefore using the sale proceeds less the existing debt as deposit for your non deductible home loan.
The transfer would trigger stamp duty and possibly CGT however in saying this doing the numbers in todays higher interest rate climate may still be worth it.
Currently we have over around half a dozen clents doing exactly this as I type.
Richard Taylor | Australia's leading private lender
Qlds007 wrote:Hi PKYou can certainly access the available equity in your IP but the interest will not be tax deductible as it fails the ATO "Purpose Test"
One consideration would be to look to sell your IP into a Trust structure borrowing the total loan amount and therefore using the sale proceeds less the existing debt as deposit for your non deductible home loan. Be very careful with doing this as a trust cannot distribute losses – it has to retain them so unless you are a business owner that can funnel income via the trust to soak up the negative gearing this will blow this opportunity out of the water.
The transfer would trigger stamp duty and possibly CGT however in saying this doing the numbers in todays higher interest rate climate may still be worth it.
Currently we have over around half a dozen clents doing exactly this as I type.
Another option if you are both employees on PAYG salaries you could consider freeing up at least half the equity – if the investment property is owned in joint names – by selling half the property from one owner to the other.
Again the Stamp Duty, CGT and possibly family law issues (if you were to break up) will be an issue.
This is one I would seek professional advice on from an appropriately qualified adviser – there are more than just tax issues to consider, you have to consider estate planning issues and investment risk liability as well.
Hope this helps.
Hello
Thank you very much for your advice.
The IP is in both our names and one of the other thoughts I had was to sell my half to my wife and utilise the funds. Realising there would be costs such as capital gains, hadn't consider stamp duty.
As you would be aware I would like to increase the loan which has tax benefits and decrease the non tax benefits loan. To make it more complicated I presently access a rural/remote housing assistance which allows 50% of the Home Loan interest to be salary package (through the public health service).
Regards
pksmith wrote:As you would be aware I would like to increase the loan which has tax benefits and decrease the non tax benefits loan. To make it more complicated I presently access a rural/remote housing assistance which allows 50% of the Home Loan interest to be salary package (through the public health service).
Even if you get the 50% salary packaging benefit you want it to be 50% of the lowest non deductible interest amount possible. Also what sort of investment time period are you considering holding the investment property – to see if is worth the transaction costs of transferring part of ownership.
Are you a doctor? If so what professional liability risk do you have – this would also affect choice of ownership structure.
Sorry again to have to rebuff a previous thread.
Be very careful with doing this as a trust cannot distribute losses – it has to retain them so unless you are a business owner that can funnel income via the trust to soak up the negative gearing this will blow this opportunity out of the water.
This is NOT quiet the case and is only True with a Discretionary Family Trust.
This is one I would seek professional advice on from an appropriately qualified adviser – there are more than just tax issues to consider, you have to consider estate planning issues and investment risk liability as well.
Totally agree a Mortgage Broker cannot offer you such advice you will need a Financial Planner.PKSmith
To make it more complicated I presently access a rural/remote housing assistance which allows 50% of the Home Loan interest to be salary package (through the public health service). Would this not be available for a new PPOR ?
Richard Taylor | Australia's leading private lender
Hello
Public liability is not an issue for me.
The IP we have had for approx 10 years and plan to keep for at least until retirement which is at least 16years away (60).
The new property would also be included under the remote housing allowance (salary packaging).
The information you provided has definetely helped. I was unsure who to go to, our accountant, finanicial institution or find a financial planner.
But it appears from the info provided a financial planner would be the best option to work out the benefits vs overall costs. Especially to calculate the capital gains costs, stamp duty, the salary packaging etc.
Regards
PK
Shoot me an email and I will be happy to work the figures for you on a non advice basis.
That way i dont have to charge you anything lol.
Richard Taylor | Australia's leading private lender
Hello Richard
Thank you very much, It wasn't what I expected or hoped for.
Regards
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