I currently have a 3br house valued at $350k with $240k loan outstanding and a growing family that has almost outgrown the space available. I also have parents looking to invest, they have a $500k house and no outstanding debt. Is it possibly to sell my 3br house to myself and parents in a 50/50 split for the $350k and then use the proceeds of the transaction to fund the purchase of a larger PPoR? I assume this transaction would attract stamp duty, but would there be other negative implications of this kind of transaction?
Yep. sounds like a good strategy. Should be no CGT and no agents fees etc and your family gets to keep the property while maximising tax deductions and reducing the loan on your new property which will not be deductible..
why a 50/50 split? If you only sell half, then you may save stamp duty, but you will only release as half as much you possibly could and your investment may be positive geared..
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
Thanks for the input Terry.
I might clarify what i mean about the sale of my PPoR as 50/50 split
I was proposing was to take a loan in my and my parents name for the so we were each liable to service the loan equally and also only be able claim half of the tax offsets each. So in my head i'm thinking the sale of the property to myself and parents gives me $110k (350k-240k i still owe) to put on a new PPoR for say $400-450k leaving me with $290-340k loan on PPoR and then a 50% stake in $350k investment loan.
Should i (or is it legal) to sell to myself at an inflated price so more of my loan is on the investment proerty and less on my PPoR?
AV
What you are suggesting is common strategy which we implement for clients regularly however couple of pitfalls you need to be aware of to make sure it is worth undertaking:
1) Stamp Duty will be payable on the Transfer as you mention and this will vary from State to State. The Duty is based on the market valuation which can be determined by a Letterhead valuation. Of course this figure may well be higher than the Bank valuation which will cost more in duty but may assist you with Capital Gains Tax down the track if the asset is sold.
On the downside of course is that the Bank will only lend against THEIR market valuation and not your Transfer price. Given that the property will be in joint names with your parents it starts to get a little messy if you want to borrow 100% of the Transfer price.
2) Whilst the property may now be in Joint names with your parents and 50% of the rent credited to your serviceability you may well find that any potential lender considers you 100% liable of the entire debt which will effect both your and their future seviceability. Without knowing their financial position and whether they are entitled to a Pension it is difficult to comment on whether ownership will effect this.
3) You could always consider selling the property into Trust with you as the sole Unit holder and achieve the same end result however dependant on your marginal tax this could prove better alround. Additional stamp duty would be payable however the cost may now be well overcome by the increased benefit.
Certainly now you could look at borrowing 100% of the Letterhead valuation of the property even though the Bank valuation maybe less.
Richard Taylor | Australia's leading private lender
I do not belive you can sell something you own to yourself. A partenership between your parents 50% / yourself 50%, is two separate individuals.
A partnership is not a separate legal entity.You are basically refinacing on house A to buy into house B. As you will still own 1/2 of house A, that portion of the original debt 1/2 $240K will be deductible, any additional borrowing will have been for the purpose of buying a new residence.
Suggest you get some tax advice.
Hate to say this is not correct
You are basically refinacing on house A to buy into house B. As you will still own 1/2 of house A, that portion of the original debt 1/2 $240K will be deductible, any additional borrowing will have been for the purpose of buying a new residence.
Assume you purchase your Spouses interest out of the property and then rent the property out the entire amount if interest charged on the funds used to purchase your Spouses share is fully deductible.
We utilise this strategy in conjuction with a couple of larger accounting firms for our clients all the time. Stamp duty is payable on the Transfer but often works out a lot better than depending on the marginal Tax rates.
Richard Taylor | Australia's leading private lender
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