Hi, I was wondering if anyone has had experiance with the following situation and if what I am thinking of can be done…
I'm in Perth, WA and my wife and I have recenty jointly bought a house which we're living in which is 100% financed. We now also own two investment properties – one solely in my name and one solely in my wife's name which have about 45% and 60% equity respectively. The mortgages for the house we live in already has the two investment properties as security and we have about 20% equity spread over all three properties.
Can we – for taxation purposes – increase the finace on the two investment properties and deacrease it on our residence by me buying into my wife's property and my wife buying into mine?
I'm aware that for taxation purposes what the purpose money was borrowed for is important (ie – the bulk of our current mortgages is for our residence) but I'm thinking if we each bought 50% of each others investment properties it should be legitimate to then claim a deduction on the interest.
Also – if this can be done – does anyone know if stamp duty on the transfer of title would be applicable in WA? I'm pertty sure that simply transfering a spouse onto a title is exempt from stamp duty in WA – it can be done via this form: http://www.landgate.wa.gov.au/docvault.nsf/web/INF_DLI_adding_spouse_to_your_land_title_july_200310/$FILE/INF_DLI_adding_spouse_to_your_land_title_july_200310.pdf
But would stamp duty be applicable if a dollar amount was put on the form rather than 'Natural love and affection'?Any comments appreciated.
I think you will find that the exemption will relate only to the family home rather than investment property.
see
http://www.dtf.wa.gov.au/cms/uploadedFiles/sd_conyeyance_or_transfer_residential_property_factsheet_0304.pdf
see top of page 5
where it mentions family home (it is what is not mentioned that makes me think it doesn't cover investment houses)
You need to check with the revenue office if this is the requirement for the exemptionNot sure on the tax side,
I am guessing a transaction would have to be at arms length which the ATO may not think your transaction is at arms length.Im not sure exactly what you mean on the tax side, but I would refinance all three properties so that the majority of your debt sits on the investment properties. Debt on your PPOR is not deductible, so it is in your interests to reduce this to the lowest amount possible, using the equity in your IPs. Refinancing is the best way to achieve this and is allowed for tax purposes. I think this is probably what you were asking!?
ambosh wrote:Im not sure exactly what you mean on the tax side, but I would refinance all three properties so that the majority of your debt sits on the investment properties. Debt on your PPOR is not deductible, so it is in your interests to reduce this to the lowest amount possible, using the equity in your IPs. Refinancing is the best way to achieve this and is allowed for tax purposes. I think this is probably what you were asking!?Yes increasing the amount of interest which is deductible is the end result I'm after but I didn't think simply refiancinig the IP's to pay off some part of the PPOR mortgage would work because there is the question of what purpose the money is borrowed for.
I thought that by buying a 50% share in each others IPs the money could genuinely be said to have been borrowed for the IPs.
Although if stamp duty is applicalbe I'll have to consider whether stamp duty will cancel out the savings from deducting interest.Also another think I thought of is that my wife's IP has been rented for 4 years now so If I bought 50% she would be up for CGT for 50% of the value. (mine has just changed from our PPOR to an IP)…
There is also a tax law that covers purposely avoiding tax and what you have proposed could be seen as a tax avoidance purpose.
CGT would be on 25% as 50% discount would apply on capital gain as well as 50% ownership.I didn't go ahead and do it but a partner of a reasonable size accounting firm (in Victoria though) advised me that I could do it. He said it was a little risky though. The anti avoidance provisions are a bit of a catch all and might be involked re this.
Surely the ATO have seen this scenario before I figured. It just seems a bit too easy. Everyone would be doing it if it had no risk.
You cannot merely refinance your IP's and claim a Tax deduction on the additional interest and then use the funds to pay down your PPOR. Anyone who tells you this is clearly mistaken.
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Wow! Be careful on what you take as factual…..
Not only is this not allowed fom the ATO's perspective, but there is further consequences that must be considered (CGT and land tax).
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