Hi,
Very new to all this so just some preliminary questions to sort my head out a little before I take professional help.
We have a Perth property worth $450k with a $200k mortgage. We wish to access the equity in this and buy another property to live in in Melbourne.
I presume we’re better off borrowing as much as possible against the Perth property as that will be rented out and keeping the mortgage on the Melbourne house lower. If I borrow 95% against the Perth property will the LMI be tax deductible?Is the loan better off in my name only for negative gearing tax benefits? (I earn $100k, my wife earns $50k) & does it matter whose name the loan is in if the property is in joint names?
Sorry if these questions are a bit broad but i’m gathering info bit by bit before taking the plunge… steep learning curve!
Thankyou
CharlieHi CJ,
If you plan to buy another PPOR and turn the existing PPOR into an IP then I would stop making payments to it immediately.
Your best option is to make the Perth property loan interest only and make all your repayments into an offset accounts against that loan.
This has three advantages:
– You are still saving interest on the PPOR until you buy in Melbourne
– You are maximising the amount of cash available for the purchase in Melbourne
– By achieving the above point, you are also maximising the amount of deductible interest on the IP once is swaps over.With having the loan in your own name, are you referring to the IP or PPOR?
If the property is in joint names you can still have the loan in a single name, but the other personal who's name the property is in will have to give a guarantee.
Hope this helps.
It doesn't matter where you borrow the money or what the security is but what the money is used for determines deductibility.
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
When you buy a property you have 2 options (cannot remember their names), the more common one is (I think joint owners) is a 50/50 split. There is also (I htink owners in common) one which allows you to allocate a % to each owner. Nothing changes at the bank (they still treat it exactly the same), but for tax reasons, the loss/profit is split according to the %rate nominated. Your solicitor can handle that when you buy a place.
As for changing the house you already have, I would look into doing it before it's a rental.
I should add, it you borrow against Perth the interest on the extra funds borrowed will only be deductible if they are used for an investment purpose. Same with LMI. What you are proposing above seems like you want to borrow to buy a place to live in so the interest and LMI wouldn't be deductible.
Deductibility depends on ownership and you can't can't that on an existing property. If you are thinking about the new one it won't matter whose name or what percentage it is in as you can't claim it if you will live in it – but it may be important if you more out later.
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
Hi,
Thanks for the swift and helpful answers, I think what had me was that i’ve read in several places that you can keep a property as your PPOR for 6 years after moving out – would this make a house I purchase and live in, in Melbourne an IP or another PPOR for tax purposes.
Any help appreciated but to be honest I think a swift trip to the accountants is in order… get the full picture!
Cheers
Charlie
You can only have 1 property as your main residence for the CGT exemption. ie one property at any one time (per couple) – except for a 6 month overlap when selling.
And you can't claim a property as an investment unless it is rented out – or you are trying to rent it out.
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
The six years is when you move out of your PPOR (which is then rented) but you or your partner to not claim the PPOR exemption on another property for that time (i.e. you rent somewhere ele).
The CGT exemption on your PPOR is not as simple as it seems.
Grow SMSF | Grow SMSF
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Thanks you for the post.
Hi guys, Im a newbie. Nice to join this forum.
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Watch When In Rome Online FreeSee I have a similiar question. I am looking purchase my first IP and Im looking to buy a new property to avoid paying so much tax. I do however plan to also build up a portfolio. Should I then look to purchase the first one under my name for benefit of negative gearing and then following properties under a trust name??
Hi Zea
Yes certainly i would look to have the first property in your name (subject to 101 points).
Unsure whether you have an existing PPOR but if so just need to structure it correctly to ensure that you can keep on buying.
Get your Mortgage Broker to explain to you the benefits of not cross collateralising the loans.
Richard Taylor | Australia's leading private lender
Hi Richard,
I dont own any properties this will be my first but my parent have been generous enough to allow to me to use one of their investment properties for equity /LOC.Is it better to buy a brand new property for tax purposes (negative gearing). I have spoke to so many accountants & property consultant but the view are very mixed.
Z
Z
I would get the to lend you the deposit funds rather than use their property as security.
Certainly a newer property will likely have increased Depreciation and Capital Allowance however may yield slightly less than an older property which has lesser Capital Growth.
It is horses and whether you want cash flow or capital growth or a mix of both.
Richard Taylor | Australia's leading private lender
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