Firshome PPRO to Investment Property in 6 months

1. CGT – is it worth declaring it as IP after 6month to qualify for my FHOG or better to stay for longer to get CGT exemption? I don't plan to sell this place at all until needs arises.

If you are living in it CGT exemption as main dwelling PPOR already exists.

The 6 month time period relates to FHOG not CGT exemption you just need to be able to prove with records that you were living there ie Bills Notices

six year rule may be worth looking at if you plan not to live there and rent it out.

http://www.ato.gov.au/individuals/content.asp?doc=/content/36887.htm

2. DECLARATION to IP – How do I declare it as IP after the period?

Done on financial year when you do tax return. if it is not a full year then the expenses are divided by the proportion of what was an expense while it was rented. Keep records of rent collected for financial year and expenses incurred while renting it out.

3. -VE GEARING – Plan to be a landlord that rents out the rooms rather than whole house. What are the items I can use to for deductions? Electricity? Getting solar?

Maybe depreciation on the solar panels, depreciation on hot water system, depreciation of carpets, depreciation of furnishings in rooms. Employ quanity surveyor to work this out.

Expenses – insurance, council rates, water rates, repairs,  http://www.ato.gov.au/individuals/content.asp?doc=/content/31258.htm

If you are renting out some of the rooms you have to proportion the expenses based on floor space proportion used for renting out compared with what is not rented out. see bottom half of http://www.ato.gov.au/individuals/content.asp?doc=/content/31258.htm

4. LOAN – how does paying "interest only" for the period of PPRO helps any tax benefits etc? Is it advisable or really doesn't make a difference? I have no debt.

Mostly this is a cash flow decision and whether you want to pay off the debt on the mortgage.

5. OTHERS – if there are any other pointers or warnings, please do let me know.

Landlords insurance – look into this rather than normal insurance. Are you managing it or getting a property manager ?

Hi Keren

Yep, it's good to pay it down quickly. You can do this with your offset account. Basically, the money in your offset account will reduce the amount of interest you pay in your loan. If you have a $500k loan and $100k in your offset, your effectively only paying interest on $400k.

If this place is going to be an IP in the future, it's important to structure it right from the start. There is no point paying down the principle on an investment loan (particularly if your planning on having a PPOR in the future). From the example above, when you do convert this into an IP, you can take that $100k from the offset, use it as a deposit on your PPOR and leave the large $500k deductable debt on your IP. Hope that makes sense

Jamie

Cheers

Jamie

And if you ever think you might rent your PPOR out and buy another PPOR you should go Interest only with 100% offset from day 1 irrespective.

There is already a couple of present posts where forum clients are doing just this and have already paid down sizeable chunks of the PPOR loan only to realise they cant redraw the funds and claim them as a deductible expense.

Cheers

Yours in Finance

Keren

Which City ?

Which Southbank ?

There are more than 1.

Cheers

Yours in Finance

Generally, you should only pay down investment debt after you have paid off all personal debt. This is because personal debt is not deductible but investment debt is. So if you were to pay PI on an investment loan while you had a home loan then you would be throwing money away by decreasing tax deductions. The extra repayments on the IP would be better spent paying down the home loan.

There is also the issue that some people will move out of their main residence later on and rent it out and then buy a new place to live in. If you were to do this, ie pay down your home loan to a low amount, then you would not have cash availble for the new main residence purchase. The end result could be a high non deductible loan with a low deductible loan which would mean you are paying tax on your rent and non-claimable interest on your new home. The way around this, partially at least, is to use IO with an offset on your main loan. Do not pay it down, but save all money in the offset – which will save you the same interest.

Since you never know what will happen in the future it may be a good idea to do this for your main residence loan now.