Hi everyone,
This subject has probably been covered before but Ill ask it anyway,
My wife and I have a PPOR with a value of $600K approx and a mortgage of $275K. We wish to purchase a new PPOR
with a value of $450k and turn our original home into an IP. Could someone tell me the best way to access the equity in the original property to do this. I have heard of using a family trust or gifting my share to my wife but Im not sure if this is the best solution. Also in doing this would I be up for stamp duty on the transfer of the property? Obviously the smaller
mortgage I have on the new PPOR and the larger on the IP the better tax wise but will it be worth all the hassle to do it?
All advice from people who have done this will be appreciated.thanks
MickThere are a few ways you could do it.
1. sell to a trust. Stamp duty would be payable, but the new full loan would be deductible. The trouble with this is any loss would be trapped in the trust and cannot be used to offset personal income.
2. one partner sell to the other. Stamp duty may be payable, depending on the state. Usually it is only stamp duty exempt if it is the main residence. If you do this the partner buying out the other could borrow and this would make the loan much larger increasing deductions and freeing up cash for the new one.
3. Set up a LOC on the existing one for the payment of investmnet expenses. This would leave things as they are now, but slowly free up cash which can be used to pay down the new PPOR loan. eg. when rates are due for the existing property, now IP, you borrow from the LOC and the cash you would have used is paid into the PPOR loan.
A variation of this is to use the LOC to pay for interest on the IP as well as all other expenses. The rent and all over income is placed into a 100% offset account against the New PPOR loan. Using this method should see the new place paid off in 5 to 10 years. But to do this you will need expert advice from a tax expert otherwise the ATO may deem it a scheme.
4. Sell the place use the cash to pay down PPOR and then buy again. Trouble is you will lose about 10% in costs such as stamp duty, legals, agents fees, loan exit fees etc
Other than these methods you cannot just borrow from the old loan and pay into the new as the interest would not be deductible.
Also consider using a IO loan with a 100% offset for the new PPOR loan too as you may decide to move from there at a later date./
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
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