Hi Everyone!
My partner and I are looking at purchasing our first property this year. We currently have only $13,000 saved (no debts), and are entitled to the $7,000 FHOG. But, my partner also owns a property (inherited) overseas that is worth around $140,000 (and is rented out for $180/week). We are thinking of using the equity in this house to fund the rest of our deposit (around $80k) on a property with a sale value of no more than $500,000 (therefore with the equity in the inherited house and our savings, we will have a 20% deposit).
We will then live in the house for the required six months (to ensure our entitlement to the FHOG), but due to the nature of my partner’s work (which has him constantly relocating) we will probably then move out and rent elsewhere and rent out the purchased property.
This brings me to my question… borrowing money against the inherited house to buy our ‘home’ (hence eligibility for the FHOG) means that we can’t claim tax deductions against the loan, because it’s not specifically for an IP…. BUT, if we move out of the ‘home’ and turn it into an IP six months after purchase, can we THEN claim tax deductions against the $80k loan? And if not, how would we calculate which is the better option – claiming the $7k FHOG, OR claiming the tax deductions against an $80k loan for a $500,000 IP, on a combined income of approx $150k.? Also, if you have any other advice for this scenario – it’d be much appreciated!!
Many thanks for reading this long-winded question – hope it made sense!
colali wrote:Hi Everyone! My partner and I are looking at purchasing our first property this year. We currently have only $13,000 saved (no debts), and are entitled to the $7,000 FHOG. But, my partner also owns a property (inherited) overseas that is worth around $140,000 (and is rented out for $180/week). We are thinking of using the equity in this house to fund the rest of our deposit (around $80k) on a property with a sale value of no more than $500,000 (therefore with the equity in the inherited house and our savings, we will have a 20% deposit). We will then live in the house for the required six months (to ensure our entitlement to the FHOG), but due to the nature of my partner's work (which has him constantly relocating)If he is in the Australian defense force and in NSW there is an new exemption for this
quote=colali]
we will probably then move out and rent elsewhere and rent out the purchased property. This brings me to my question… borrowing money against the inherited house to buy our 'home' (hence eligibility for the FHOG) means that we can't claim tax deductions against the loan, because it's not specifically for an IP….
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Take out a line of credit facility in the other country for the deposit. As you will most likely not be able to secure AUS Loan with another property in a different country.
By taking loan in another country, however you will be exposed to foreign currency risk.
A line of credit separates the loan with overseas existing mortgage so it can be easily identified as a loan for the deposit.
So when you change the use of the PPOR to IP you have a loan linked directly with IP purpose.colali wrote:BUT, if we move out of the 'home' and turn it into an IP six months after purchase, can we THEN claim tax deductions against the $80k loan?
Only on the portion of total yearly interest and yearly expenses for the remaining days left in the financial year.
days left /365 * annual expenses (not sure on the foreign interest charges they are probably foreign expenses in the tax return ?)There are more knowledgeable people on this forum who are mortgage brokers who may be able to confirm if cross security between countries is allowable or not and
whether Australian rental income can be offset against Foreign interest expenses in Net Property income/Loss on the tax return or if it goes into Foreign expenses in the tax return for a foreign loan.Wait a while as I am sure other views and opinions will come from other Forum contributors.
If you borrow money it is the purpose that determines deductibility.
So if you use a loan from overseas and a loan from Australia and the property purchased becomes an investment property, then interest on both loans should be deductible.
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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