Additional property purchase with view to rental initally and then move in!

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bazmania
Participant
@bazmania
Join Date: 2009
Post Count: 1
May 11, 2009 - 6:01 am
Scenario

Currently live in own home with P&I mortgage. (309k remaining)
About to buy additional property (circa 750k) with IO mortgage.

Intention is to rent out new additional property for a couple of years, then move in and rent out my current home as an investment property.

What is the most effective way to ‘engineer’ this in order to minimise Tax payments. I am familiar with only being allowed a PPoR at any single time and also the 6-year CGT Rule.

Technically could I ‘move’ into my new property for a month, ‘move’ out and back into my existing property and then rent out the new property and still have CGT Tax exemption up to 6 years in the new property?

Prior to moving into my new property in a couple of years, can I remortgage existing property (increase loan to increase interest payment), and transfer lump to new premises?

Thanks in Advance

BM
Dan42
Member
@dan42
Join Date: 2008
Post Count: 619
May 11, 2009 - 7:24 am
bazmania wrote:
Scenario
Currently live in own home with P&I mortgage. (309k remaining)
About to buy additional property (circa 750k) with IO mortgage.

Intention is to rent out new additional property for a couple of years, then move in and rent out my current home as an investment property.
What is the most effective way to ‘engineer’ this in order to minimise Tax payments. I am familiar with only being allowed a PPoR at any single time and also the 6-year CGT Rule.
Technically could I ‘move’ into my new property for a month, ‘move’ out and back into my existing property and then rent out the new property and still have CGT Tax exemption up to 6 years in the new property?

Whether you have moved out is a question of fact, and would be based on changing your address for various items (drivers license etc), having the utilities connected in your name. It would be hard to do this for a month, and probably wouldn't pass if the ATO found out.
How long are you planning on staying in the new house? If you're planning to stay for a long time, the taxable gain may be minimal anyway. You would get the house valued just before you moved in.
bazmania wrote:
Prior to moving into my new property in a couple of years, can I remortgage existing property (increase loan to increase interest payment), and transfer lump to new premises?
No, as the deductibility rule for interest is, 'what were the borrowed funds used for?' As the funds would be used to pay down non-deductible debt, the extra borrowing would not be deductible.