I have asked this in another thread but I thought I would start my own as I am a bit confused still.
Here is a quick breakdown of what happened.
Parents go to CBA arrange 800k finance on their existing home. Purchase the place as nominees for me and pay the vendor with the banks 800k. House is now under my name and I pay them rent. Bank has no claim to the new house but to my parents existing house. I pretty much have a 800k cash house now as the title is in my name and the banks claim is over my parents income and current property. But my parents are going to write up a loan agreement and register a mortgage over the house. Essentially they have borrowed money off a bank and they now want to act like a bank to me through onlending the cash to me. The reason for doing it this way was because I could not get 800k finance so my parents borrowed the money as they could get a better rate and now they have lent it to me. So they are essentially acting like a bank to me.
The only reason why they purchased it as a nominee was because I was not in Melbourne at the time to bid at auction.This is the loan agreement we will be using
https://lawcentral.com.au/CreateDoc/createlink.asp?docId=28Is there anyway either my parents or myself can claim the interest we repay to CBA every month? At the moment we cant claim interest because the property has not tie to the 800k is this correct? How do we make the link so one of us can claim? Is writing up a loan agreement in conjunction with my parents registering a mortage over my house sufficent for one of us to be able to claim the interest we pay to CBA? When I say claim I mean offest against taxable income.
I am actually living in this house and repaying the debt myself, it is just that the loan has been taken out by my parents as I could not get that much finance and we didnt want to go halves. What can I do to remain CGT exempt on the property and also claim the interest?
Nothing. You cannot claim interest as a deduction for a house you own that you are living in. You will howver be cgt exempt on sale, because it is your own home (principal place of residence) that you are living in.
What about my parents? If I am paying them rent?
What about when I move out after 6 months? For those 6 years I am allowed to rent it out can I claim?
As this was purchased by my parents in auction and they acted as nominees for me if they register a mortgage over the property does that mean they will have to pay stamp duty? The title has been transfered into my name now.
The property will still stay in my name under title, why would they need to pay stamp duty to register a mortgage? The document the land titles office gave me said stamp duty might be charged, bit confused as to why and if it will occur in my situation.
What do you mean by nominees? Did they sign the contract as your agent? or a Trustee?
I hope you have taken advice on this or there may be double stamp duty payable. once by them and once by you when they nominate you.
Assuming the property ends up in your name, I can see no basis on which you could claim the interest – nor them. Just think of them as the bank. If you borrowed $800,000 from ANZ could you claim the interest? only if it was an investment property.
They could only claim the interest if they had lend the money to you at commercial rates – but then the interest they receive will become income and so it won't really offer any benefits.
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
You have made it a little more complicated by the way you have done it.
Signing at auction and/or nominee is fine as the nomination into your name would have happened before settlement and your name is on title, so the property is yours as your PPOR. Did you claim FHOG as well and PPR stamp duty concession?
The funds to purchase it were supplied by your parents who used the own equity in their PPOR. They need to pay interest to the bank for this loan. You said you are currently paying this debt back.
If your parents want some surety over this property, they can register a mortgage against it and pay stamp duty on the mortgage registration itself, which is minimal cost. It is not the same as stamp duty on the sale transaction which may have been $40k or so.
If your parents were paying interest back to the bank, they could claim interest as an expense if they received an income from you. As the property is in your name, it cannot be rent but it could be interest income to them if you decided to pay them and they paid the lender. As Terry said, if what they received as interest income matched the interest expense, why bother as no net effect. If you are paying the debt directly, it is just regarded as a normal home loan with your parents as intermediaries.
Greg
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