Hello,
A simple question. I have an investment property, I am in Victoria. The title is under my name, but in reality two of us invested in it. Well, that other person wants to pull out and I have to either refinance the investment property, or redraw my home loan to pay him.
At the moment it is already positively geared. So it would make sense to refinance the investment. However, I want to be able to continue claiming the interest against my personal income tax.
SO, the property is under my name, everything stays the same except I want to somehow increase the loan, and claim the increased interest.
Is selling the only option??
Interesting question.
legally you maybe acting as trustee for his share. Has he been declaring the income in his tax return?
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
leoau wrote:Hello,
A simple question. I have an investment property, I am in Victoria. The title is under my name, but in reality two of us invested in it. Well, that other person wants to pull out and I have to either refinance the investment property, or redraw my home loan to pay him.
At the moment it is already positively geared. So it would make sense to refinance the investment. However, I want to be able to continue claiming the interest against my personal income tax.
SO, the property is under my name, everything stays the same except I want to somehow increase the loan, and claim the increased interest.
Is selling the only option??
Have you considered using a discretionary trust to buy half of the interest in the property? The trust can borrow and claim the interest and will be assessed on half of the rental income. Not a good option if the property is negatively geared but if it is positively geared, it will be an option without having to sell the property to a third party. Should see an accountant who can walk you through the options available to your specific circumstance.
Eddie
[email protected]Terryw wrote:legally you maybe acting as trustee for his share. Has he been declaring the income in his tax return?No that person never claimed anything, and in every legal and tax way it is under my name and is mine. The other person doesn't exist.
eddiec wrote:Have you considered using a discretionary trust to buy half of the interest in the property? The trust can borrow and claim the interest and will be assessed on half of the rental income.Perhaps, we should have orginised it 10 years ago, but it was not done.
Now the other person just wants his half. The property was and stays under my name, like it was before, all 100% of it.
Or are you saying to register a trust and transfer it into trust?If I refinance the investement, and start claiming the increased interest – will ATO ask me what the hell is happening?
As I said it is a positively geared property, and I need to redraw 200K, so, it will be significantly negatively geared one – will ATO start questioning me?
I am probably being naive here, but can I claim that these 200 K are for further property investing, hence this redraw and losses are business related?leoau wrote:If I refinance the investement, and start claiming the increased interest – will ATO ask me what the hell is happening?As I said it is a positively geared property, and I need to redraw 200K, so, it will be significantly negatively geared one – will ATO start questioning me?
I am probably being naive here, but can I claim that these 200 K are for further property investing, hence this redraw and losses are business related?Hi
I think you are stuck. If you want to claim the extra interest on the $200,000 withdrawn you have to justify it. If audited you will have to prove how the funds were used and how related to investment/business.
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
leoau wrote:If I refinance the investement, and start claiming the increased interest – will ATO ask me what the hell is happening?As I said it is a positively geared property, and I need to redraw 200K, so, it will be significantly negatively geared one – will ATO start questioning me?
I am probably being naive here, but can I claim that these 200 K are for further property investing, hence this redraw and losses are business related?My suggestion was to establish a new trust to buy half of the property off you. As the trust will need to borrow to do this, it will be entitled to a tax deduction on the interest. The idea is – the trust is "owned" by you anyway, so it doesn't matter that you and your trust both own half of the property respectively. However, this will not be a good option if the trust will be negatively gearing the property, unless there is a means to inject other income into the trust to soak up the negative gearing loss.
Let's say the trust needs to draw down $200K to buy half of the property from you, the interest will be say $200K x 7% = $14K per year. Would half of the annual rent exceed $14K? What about other claimable expenses, eg, building allowance, holding costs?
Eddiec
[email protected]I don't see why you can't up the loan take some equity out and pay the other person. but prob run it past your accountant
Does the other person want all the money or would they be willing to take a percentage plus weekly/monthly payments etc?
You could be in a sticky area if this is a defacto relationship and even if everything is in your name they may be able to claim 50%.Also are you looking at borrowing 50% of the total price or 50% of what is owed on the property to pay the other person out.
If the property is worth 400K but you owe 200K then payout should only be 100K. Don't fall for the trap of paying out on the value of the property. You may want to work out how much each person has contributed to the property so far and pay out a percentage of that.keiko wrote:I don't see why you can't up the loan take some equity out and pay the other person. but prob run it past your accountantI've got just a few thousand left on this mortgage. I claim this interest as a loss. I will need to redraw 200K against this property to pay the other person up.
So, if I do, tomorrow I will have to claim interest on 200K+ which will makes the property negativly geared. In this case, ATO will ask me questions and possibly audit.C2 wrote:Does the other person want all the money or would they be willing to take a percentage plus weekly/monthly payments etc?
You could be in a sticky area if this is a defacto relationship and even if everything is in your name they may be able to claim 50%.
Also are you looking at borrowing 50% of the total price or 50% of what is owed on the property to pay the other person out.All good points, and we have thought about them. It is 50% righ away, not weekly repayments, and I am borrowing half of market value less outstanding mortgage. And it is not a default relationship.
And equal contribution all the way…So, looks like there is no way for me to keep the property but increase the mortgage and claim the increased interest?
leoau wrote:keiko wrote:I don't see why you can't up the loan take some equity out and pay the other person. but prob run it past your accountantI've got just a few thousand left on this mortgage. I claim this interest as a loss. I will need to redraw 200K against this property to pay the other person up.
So, if I do, tomorrow I will have to claim interest on 200K+ which will makes the property negativly geared. In this case, ATO will ask me questions and possibly audit.ATO will want to know what the$200,000 borrowed was used for. If not for investment/business then you can't legally claim it. But whether you will be audited or not is a different matter. They may pick up the sudden increase in your deductions compared to last year and start asking questions.
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
C2 that would be ripping the other person off, if they contributed half the deposit at the start then they should have half of what ever its worth on todays market obviously less any costs.
leoau. you could minus half the realestate fee of what you pay the other person. as this would happen if you both sold the property now. If you don't minus this fee and you buy the other person out, when you eventualy sell you will cop the full agent fee.
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