Hello. My retired parents have around $100K that they would like to invest in property. They would not qualify for a mortgage, are not looking to reduce their tax liability and do not want the hassles of owning an IP. They just like the emotional attachment of partially owning bricks and mortar rather than shares or bonds.
I am looking to purchase my next IP, valued at $350K, and my parents have suggested investing their $100K towards this property. The property would legally be in my name (so I can claim all tax deductable expenses), but obviously my parents would be morally entitled to a % share of the property. As my objective with investing is to reduce my tax liability, my initially thoughts are that this $100K would reduce my mortgage, but would also reduce my claimable interest charges and probably make my property positively geared.
Is there any way that I can use this $100K, gain all the taxable benefits of having the property in my names but to also compensate my parents by paying a nominal interest charge on their "loan" that would be tax deductable?
Rather than get them to be a party to the loan there is nothing stopping them lending you the funds at a commercial rate of interest.
You would pay them interest which you could claim as a deduction and they in turn would declare the interest as income.
Also nothing to stop the loan agreement stating that the receive a balloon payment if the property is sold within a given time period.
In saying this there is a lot more information which is required to make a structured answer protecting both parties.
Richard Taylor | Australia's leading private lender
Thanks for the advice Richard
Just watch out for the potential affects all this will have on their pensions and other entitlements – if applicable.
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
With the new credit reforms the government is doing – ASIC they may need a credit provider license.
As your objective with investing is to reduce your tax liability you need to work out what is your marginal tax rate.
http://www.ato.gov.au/individuals/content.asp?doc=/content/12333.htmIf you earn over $80,000 then you are losing 60% of your money unless you are utilising building write off depreciation and capital depreciation.
If you earn over $34,000 then you are losing 70% of your money unless you are utilising building write off depreciation and capital depreciation.
If you pay say 40% tax and had a net property income of minus $1000 you spend $1000 to get back $400 but you have made a loss of $600
If your parents kick in $100,000 and say as an example you make a net property income of $1000 you are taxed $400 but you have $600 left as profit.Having a property with positively cash flow is not such a bad thing.
That extra cash could be used to help pay off the mortgage.Yep they would indeed need to hold a Credit License post July 1.
Interesting that even referers of business need to be licensed.The local Real Estate agent tells Mrs Smith he knows a really good fella to help her with her finance he will need to be Licensed.
Richard Taylor | Australia's leading private lender
The new NCC seems like a lot of Rudd government programs, rushed through without proper thought about consequences. I doubt it was intended to include non business lending like this otherwise one mate lending another mate $100 over a weekend gets caught if we take it to extremes.
Why not look at another structure, perhaps a trust purchasing the property with you and your parents as beneficiaries? It could be a unit trust even.Good luck
GregHi Richard,
ASIC are still reviewing the referrer part but I actually support it…
ASIC are not interested in the agent / accountant who tell the client to see one of the bankers / brokers up the road. They are targeting the real estate agent / accountant that forms a strategic referral relationship with a financier or broker and refers regular business.
The problem is when the relationship between the referrer and the banker / broker becomes established, it becomes stronger than the relationship between the banker / broker and their client.
For example; is a finance broker in a real estate office Or referred by the real estate agent working to get their client the best deal, or are they trying to help the real estate agent close his / her sale?
You then have the situation where the accountant / agent get an undisclosed kickback from the broker.
Another issue is privacy laws when the broker / financier provides feedback to the referrer re the status of an application, how much they can afford to spend and so on (limits the customers negotiation ability).
I’m happy to support regulating referrals, the way they get referred, remuneration and most of all – limiting the feedback given to the referrer… A ban on commissions to accountants and agents even better…
The overall concept needs some adjustment (ASIC are looking at that now). All up it’s a step in the right direction.
Banker
Banker,
Yes you are correct that ASIC are still reviewing the referrer regulations but after attending a seminar held by them in Brisbane last Tuesday the advice at this stage is not to take referrered business unless the referrer does so in writing to the customer effective July 1.
I am totally in favour of the NCC rules changes although must admit the transition period between July 1 and Dec 31 will be interesting for some.
Richard Taylor | Australia's leading private lender
The feeback I’ve had is similar. They did not say to receive it in writing however the main point was not to receive any information apart from a name and ph number. E.g. If they start advising you what the client is doing apologise and tell them you have to get that information from the customer.
Sorry I think the problem is too many companies are "controlling the client"
A wood duck … Sorry … an unsophisticated investor (forgive me) goes to a mortgage broker to refinance … mortgage broker says hey you can afford an investment property I know a great company xxx marketing group … xxx does a big sell by a slick sales person who is not a licensed adviser to give investment advise … xxx have their own in house accountants and FP division who both charge $5k for fee for service on top of the $30k property commission … got the picture
The ASIC have not worked out how the SEPARATE a client from being "controlled" and ripped off by companies desperate to earn commissions …
PS 146 is a joke … every time I see "buyers agent" run for the hills … every time I see marketing company I see "over priced" …
The ASIC in my opinion MUST insist on a form that is to signed by EVERY sales person responsible for the sale from, broker, agent, accountant, company director etc etc with their qualifications … WHY
BECAUSE one of my jobs is to fix the mess created by the sales LIES by unconscionable individuals that have stuffed up the lives of really nice mum and dads out west — thats right out west because these companies would go broke working in the East or a more sophisticated area.
The ASIC must create a legal separation of every business … Independent in every way.
D
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