Maybe a simple question/answer to others, but what is the position the banks hold on subdividing an IP that they hold the title for?
If i had an IP purchased for $380k,with $350k owing, what is the process if i was to create a battle axe sub and sell off the back for say $195? Surely it would breach the LVR of the front property for which the original loan was taken? In my mind i would stick the after tax profit from the sale in the offset account of my current PPOR,and keep the front property as an IP.
Am i on the right track? Also how would the CGT be calculated on the sale of the rear block? Would the date of sub count as the CGT event?Any answers would be great thanks,TerryW or Qlds007 this seems up your alley?
You would need to get the lender on board of course as you could not amend the titles while they are holding as security. Generally it is no big deal, the bank will consent to release if you pay down the loan on or before settlement to keep the LVR at the acceptable level on the remaining security.
Taxation aspects are pretty complex.
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
Thanks for the speedy reply Terry. So the best time if possible to advise the bank of my intentions would be at the original loan funding stage? Then use some of the profit from sale of rear block to bring down the LVR and the rest on PPOR offset? May be best to stalk through the ato website then speak to an accountant regarding CGT if it is complex, don't want to set it up incorrectly and pay more tax than i have to.
Probably best to wait off on the bank a bit. Tell them only when it is all organised. Otherwise they may not lend or may want to class you as a developer or similar.
But best to talk tax asap.
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
Sound advice,thank you. Heaven forbid i be classed as a developer, i'm a maintenance fitter
Agree with Terry.
There are some lenders i can think off who wouldnt have an issue (we have done similar for 101 other forum clients) and others who would run a mile.
Correct lender choice is parramount.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Thanks Richard, will have to engage a broker when i am ready to make sure i start on the right foot with this little venture i am considering. Found a suitable loan on my own last time but broker seems the better option for me at the present time.
Good question OP.
In my case I want to subdivide an existing IP (IP2).
I have the green title to my first IP (IP1) I'll use a security for the development work on IP2, but then I'll need to use the developed property (IP3) as security for the original IP (IP2) to keep the LVR where it is.
What other options are there? Obviously crossing IP2 and IP3 should be avoided.
The structure will need a little more planning than that IMO. If you use IP3 as security for IP2 then they will be cross collateralized, which isn't an ideal situation. More creative with stand alone loans or a LOC etc would be better,but there are more clued up people than me that can answer.
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