Hi everybody and anybody
2 questions.
If I have money in an investment property loan that can be redrawn and I redraw it and use it as the deposit for the purchase of another investment property will the interest on the redrawn amount be deductible?
Secondly, is it a good idea to purchase ones PPoR in trust and rent the property from ones trust in a business like manner or is it better to purchase in ones own name? (assuming one plans to never sell).
Thanks everyone
-Nathan
G'day Nathan…
Cant help you with the second question, but yes any money withdrawn and then used for investment purposes will be tax deductible on your intial investment loan.
Cheers
tugger
My knowledge on your second question is too limited to comment. However is one aware that one can also run one's own super fund (SMSF) and that the said super fund can acquire property? One could then sink extra money into one's super fund each year at a reduced tax rate. This sounds nice since property is normally purchased with net income, often taxed at quite a high rate.
Of course, the super fund is a business and would have to charge rent to reside in the property.
There are some other threads on SMSFs on this website. Take a look
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Sorry Jac M this is totally illegal the super fund is a business and would have to charge rent to reside in the property.
A SMSF cannot rent out a residential property to any related party under the SISA.
Penalties for breach of the Act are severe.
Richard Taylor | Australia's leading private lender
Taking money from a redraw is just reborrowing it. So deductibility will depend on what the withdrawn money is used for.
Renting from a trust is not a good idea – usually.
Firstly losses in a trust are trapped. So if the trust has no other income the losses just sit there.
If it is making a profit then the trust must distribute this profit so you could end up paying tax on your own house. Even if it starts off with a loss you must charge market rent so it will become positive over time. imagine after 30 years you will be paying huge rent to yourself (essentially) and paying tax on it.
Trusts do not get the CGT exemption so if you sell later on you will pay tax on what would otherwise be tax free.
Land tax will be payable in some states (eg NSW no threshold). I think it is 1.7% in NSW. If owned in your own name it could be exempt.The only reason to buy a main residence in a trust would be if you are at risk of being sued, and your home is only going to be your main residence for a short period before being rented out to a third party.
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
Structures…
Hi everyone.
I'm sitting here trying to work out the best way to structure myself for property investing – in my own name, or to do the company and family trust model.
Currently I'm a renter, on a better than average salary with no personal debt, no mortgage, no partner and no kid(s).
I note Steve never has bought a property in his own name.
How are you structured? I'd appreciate your comments…
I suggest you buy one in your own name to take advantage of the CGT and land tax exemptions and then look at using a discretionary trust
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
Also depending on the State in which you are in you might want to think of buying the first place as your primary residence claiming both the First Home Owners Grant and the Concessional Stamp Duty.
Once you have satisfied the elligibility conditions you could move out.
Structure the loan as interest only from day 1 and you should be fine.
Richard Taylor | Australia's leading private lender
Thanks.
I'm off to the Accountant today for a chat…Look into establishing a Unit Trust with your accountant, you should find that if set up correctly the losses will not be trapped iin the trust and your deductibility will still be there.
Look at purchasing the property in the trust name and financing in your name. Again talk to your accountant for more info regarding structure, benefits etc.
You will need to find a bank that will accept this structure, but they are out there.
I personally can't see much point in using a unit trust as there are not tax savings and no asset protection. You might as well buy in your own name. You could borrow to buy the units though.
One advantage, however, of the unit trust is that you may be able to transfer the units to your SMSF without stamp duty later on.
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
I keep an eye on your comments. Thanks for them..I really appreciate them.
At this stage, my accountant wants me to buy a property in my own name sooner rather than later, that i can live in but also that would be attractive to rent out (at a later stage).
I'm not eligible for the FHOG. I plan to buy in the Wodonga part of Albury/Wodonga area at this stage.
Then she's mentioned about setting up a discretionary trust fund…
Frankly, I'm still not sure just yet which way to go and spending my time furiously re-reading chapters from Steve's books and Margret Lomas' books.
Currently plowing all my cash into the bank to have a minimum of 20% deposit to avoid Lenders Mortgage Insurance, and to cover the stamp duty / moving costs etc…
Hi Brick
LMI is only an opportunity cost and therefore if prices are likely to rise whilst you have saved the addtional amount to make up 20% deposit i would buying now and incurring the expense.
Remember when you rent the property out the loan costs (including LMI) proportionally will become deductible so will mean less out of your own pocket.
Also might want to think about a 90% loan with LMI and place the balance of your deposit into an offset account to maximise you deductible interest down the track.
Richard Taylor | Australia's leading private lender
Thanks Qlds007. What you said, i've read before too in one of the books mentioned previously…but i'd forgotten.
Really appreciated.
I think you need at least one property in your own name (per couple) to grab that CGT free status – this is the only asset you can get which will be CGT free and it should offer considerable growth over the long term. So not utilising this is a bit of a waste.
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 Terryw. Appreciated.
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