Hello everybody,
My wife and I jointly own our PPOR in Geelong (outright) but we are relocating to Brisbane at the end of this year. We are thinking that we would like to retain our existing PPOR and use it as an IP (we feel there is great potential for capital growth in Geelong), however we need to find a way to get some equity out of our existing PPOR.
I have read a number of the threads in this forum and wanted to confirm I have understood the following correctly:
1. We could establishing an investment loan over the property by one of us "selling" our half share of the property to the other and that the interest on this loan can then be geared against the rental income?
2. From the point at which we convert the PPOR into an IP, we lose the CGT exemption and so we should obtain a registered valuation on the property as a basepoint for any future CGT when we sell?
3. As the property is in Victoria, there is no additional stamp duty payable?
4. We can pull further equity out of the IP (for our new PPOR purchase in Brisbane) by subsequently refinancing the investment loan up to say 80% of the property value while all of the loan interest can still be geared?If I am correct with the above, then does this sound like a good idea? are there any better alternatives to pull equity out of the property?
I am somewhat of a noob on this so what should I do next/who should I talk to? Any recommendations for a property accountant etc in Geelong?
Thanks in advance for your support and advice.
Rob
Hi Rob,
Sounds familar but I believe getting advice from a good property tax accountant is the way to go. People on these forums mean well and have heaps of experience but at the end of the day I believe you have to speak to the experts. This some times costs you a bit but when your dealing in the 100's of thousands of dollars it is money well spent. (tax deductible in many cases too!)
Hi Rob,
I’m not familiar with victorian state law stamp duty and such, so I’m not much help with 1 through 3.
But as regards #4, the short answer is no. If, after 1 through 3, you have (say) 50% LVR, you cannot then use another 30% (going to 80% LVR) as security for your new PPOR and claim the interest on that 30% as a rental property deduction.
trustee: the same could be said of any thread on this forum… I reckon a high portion of people asking these kinds of questions here end up asking their account about it, its just that when they do ask – they’ll know exactly what to ask. Personally, I reckon if you’ve taken the time to research your investment strategy on the interweb (and found propertyinvesting.com), then your healthy curiosity should be rewarded with the thoughts and opinions of others.
Hi Rob,
I have to say I find it extremely useful here and enjoy the openess of newbies to ask general or even basic questions. It gives me a context, a broad outline, and a fair warning on potential issues that would be 'sprung' on me at an accountants office. Anyway, I reckon you are making a great enquiry Rob.
As for point 2 there is a 6 year rule surrounding CGT and PPOR's. I dont really understand how it works but it sounds like under certain circumstances a former PPOR can be held as a rental for 6 years without getting CGT? Search the forums as I have read something about it. Maybe someone can rescue me by providing a proper explanation!
As for who should you talk to … you need to put together a team that will work with you towards your financial goals. I personally have a banker (a broker would do), a solictor, an accountant (which I am looking to change for a more specialised property accountant), a REA/property manager. I am meeting with a financial planner for a braoder perspective but I dont know if that will be useful yet. Hope that helps.
Anyway, good luck with your investing. Keep asking questions on the forums as there is a lot of experience that you can tap into. I've found it extremely helpful so far.
Regards,
Andrew
itsandrew
Go as far as you can see and you will see further.
Rob,
I would agree with getting professional advice but make sure the accountant is an experienced property tax person because I have heard some terrible uninformed advice from many accountants.1. As it is your PPOR you can transfer ownership to your spouse with no stamp duty implications. Trying to sell it and creating loans between spouses smells of tax avoidance, perhaps stay away from that path. If your existing LVR is low, perhaps transfer that to the lower tax payer and when it is rented, it will be a positive income stream.
2. There is a 6 year period re CGT but see your accountant, most know this stuff.
3. see 1 above if it is a PPOR, different story for an IP.
4. I agree with Mr5o1, no, if additional funds you pull out will be used to purchase a PPOR, the use of the funds determines whether it is deductible, so purchasing a PPOR is a private capital purchase and not deductible.You could refinance and pull out equity and use it to purchase or fund the purchase of another IP and then it will be deductible. You then rent for a period instead of buying a PPOR. Perhaps in 5 or 6 years, consider selling your Geelong property, take advantage of the CGT exemption, free up enough equity to purchase your own PPOR outright or close to.
Good luck
Greg1. You could purchase out your spouse, making sure it is for commercial reasons and not tax reasons. If you borrow to do this and the property becomes a rental then the interest may be deductible
2. There is a 6 year rule which may enable your property to be CGT exempt while you rent it, but it won't apply if you have another main residence at the same time, s118-145 ITAA 1936. Otherwise your property will be subject to CGT from the date you move out – unless it was purchased pre-1985
3. Looks like stamp duty is exempt in Vic s43 Duties Act
http://www.austlii.edu.au/au/legis/vic/consol_act/da200093/s43.html4. Interest on money borrowed will only be deductible if that money was used for investment of business related matters.
Look at setting up a LOC on the equity available and use that to pay for investment related expenses.Check this with your tax advisor.
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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