Happily (in a sea of despair), OSR does allow this. It is not allowed for the FHOG, but is for the first home owner zero stamp duty concession.
Top call centre question #1 listed on OSR website:
Q: "A husband and wife purchase a home to live in as their principal place of residence. The property is valued at $490,000. The husband has not owned residential land previously; however, his wife has owned numerous properties. Can the husband claim the first home concession?"
A: "Yes. The husband can claim the first home concession, and will need to complete a Form D2.1."
paradigmv wrote:Happily (in a sea of despair), OSR does allow this. It is not allowed for the FHOG, but is for the first home owner zero stamp duty concession.Top call centre question #1 listed on OSR website:
Q: "A husband and wife purchase a home to live in as their principal place of residence. The property is valued at $490,000. The husband has not owned residential land previously; however, his wife has owned numerous properties. Can the husband claim the first home concession?"
A: "Yes. The husband can claim the first home concession, and will need to complete a Form D2.1."
That sounds promising. Just verify with your solicitor.
So what you need now is a good tax advisor, a lawyer and a mortgage broker to work out how this can be done. If one says it cannot be done then they are no good and move on to the next one.
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
If you wanted to keep the full deductibility in your name which I think that you don't. Then you could transfer the property into a trust at the bank valuation price. Set it up so that you can get a loan out in your name to cover 105% of the value and the deductibility remains with you which may be beneficial as you are the income earner. This will cost you stamp duty though.
This transferring into the trust scheme is all based on doing it with finance and interest, you have said that your wife may have no borrowings on it and the positive cashflow will be under her tax threshold, so if that is what you want to do then the trust scheme is not a goer.
Ok we definitely dont want to go down the mixed loan path… I take it what I need to do then is clearly split that IP loan into one 170k investment portion, and another 100k private portion… then fully pay back the 100k private portion. When I'm ready I can then take out that 100k as a new investment loan towards the deposit for another IP.
I just got off the phone to the ATO. I explained my question and was directed to a lady who answered that as long as the funds in the IP loan's offset account is used exclusively for investment purposes such as shares or deposit towards another IP, interest paid on the loan is fully tax deductible… Terry is this perhaps what you meant by the ATO not "strictly" enforcing tax law for these sorts of cases?
paradigmv wrote:Ok we definitely dont want to go down the mixed loan path… I take it what I need to do then is clearly split that IP loan into one 170k investment portion, and another 100k private portion… then fully pay back the 100k private portion. When I'm ready I can then take out that 100k as a new investment loan towards the deposit for another IP.I just got off the phone to the ATO. I explained my question and was directed to a lady who answered that as long as the funds in the IP loan's offset account is used exclusively for investment purposes such as shares or deposit towards another IP, interest paid on the loan is fully tax deductible… Terry is this perhaps what you meant by the ATO not "strictly" enforcing tax law for these sorts of cases?
Yes, Strictly speaking I would say it isn't deductible. But as long as you can trace the funds and there is no mixing of borrowed funds with other funds then the ATO may allow it.
You really need to see a tax advisor and to go through it all as if you get this wrong it will cost you tens of thousands over the next 30 years.
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
From what I recall, it's the person whose name is on the title who gets all the benefits. So if the wifes name is the only one on title, but the loan is in two names, it won't matter as all income and expenses would be attributed to the wife.
Cheers
Tom
Terry, as a hypothetical what if the money was paid back into the PPOR loan (which is 100% investment from what has been advised), and withdrawn at a later date. No mixed loan from what I can see, so should be fully deductible?
Cheers
Tom
PLC wrote:From what I recall, it's the person whose name is on the title who gets all the benefits. So if the wifes name is the only one on title, but the loan is in two names, it won't matter as all income and expenses would be attributed to the wife.Cheers
Tom
This is generally true, but not always.
for example A and B own a property.
B uses money from a LOC which is taken out in the names of A and B.
B buys a new property in B's name only.
B can claim 100% of the interest on the money used from the LOC to fund this property (if investment).
or
A owns a property and takes a LOC out on this property.
A's husband B buys a new property and uses this LOC to fund it.
B can claim 100% of the interest on this borrowed money assuming new property is an investment.
Here A is essentially onlending the money to B who is using it to invest.
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
PLC wrote:Terry, as a hypothetical what if the money was paid back into the PPOR loan (which is 100% investment from what has been advised), and withdrawn at a later date. No mixed loan from what I can see, so should be fully deductible?Cheers
Tom
My argument would be that the money borrowed and placed into an offset account is no longer borrowings. The interest on this is therefore no deducitble and that portion of the loan would be private in nature. I am being very strict here and the ATO may be more lenient but it is best to be very careful in this area.
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
I've been reading this thread as it has unfolded and perhaps I am being a little simple but it appears that the only reason for transferring the home to the wife is to take advantage of her tax free threshold. But if I follow the money I don't see the profits that you are trying to save tax on…
The house is currently your PPOR – no income
when you rent it with your 80% loan still owing – not likely much income on this one
if you continue to refinance to fund deposits on IP2 and IP3 as you have stated even less likely much income on this one
Would all of this effort and extra expense really lead to reduced tax?
Zanshibui wrote:But if I follow the money I don't see the profits that you are trying to save tax on…The house is currently your PPOR – no income
when you rent it with your 80% loan still owing – not likely much income on this one
if you continue to refinance to fund deposits on IP2 and IP3 as you have stated even less likely much income on this one
Would all of this effort and extra expense really lead to reduced tax?
Say in 3 years' time we rent my PPOR out at 20k/yr. Sure, I still have an 80% loan owing against this property, but the 20k/yr rent income cannot be offset against the loan, because the loan purpose was to purchase IP1. Hence, I still end up losing my marginal 34% on the 20k/yr. However, if the PPOR were transferred to my non-working wife earlier, she gets the full untaxed 20k/yr.
Thanks again for clarifying this.
I found some corroborating comments from tax accountants BANTACS:
"Interest on a loan is tax deductible when the money borrowed is used for income producing purposes. Case
J54 (1958) 9 TBRD established the principle that interest is apportioned according to the ownership of the
investment purchased. Accordingly, a couple can borrow money jointly for an investment that is held in just
one name. The whole amount of the interest attributable to the investment will be deductible to the partner in
whose name the investment is held."
Hence I could transfer my PPOR into my wife's name, 'refinance' the IP1 loan secured against PPOR such that both our names are on the mortgage, yet still claim 100% of the interest on this loan, as its original purpose was to purchase IP1.
My question then becomes this:
Would the original loan purpose be retained/carry over even after the loan is 'refinanced' into both our names? Would there be any reason for the ATO to deny 100% interest deductibility on the basis that the new 'refinanced' loan no longer retains its original purpose…?
Found this advice from BANTACS that I believe should answer my question above:
"The basic rule is that the interest on a loan is only tax deductible when the money was used to buy an income producing asset or to refinance a loan that was used to buy an income producing asset."
Looks like the answer is YES – I can sell my PPOR to my wife for zero consideration, pay no CGT or stamp duty for the transfer, 'refinance' the investment loan secured against PPOR to include both our names, yet still claim as deductible 100% of the interest incurred by this loan as the original purpose (to purchase IP1 in my name only) remains unchanged.
Will run this by a tax accountant, mortgage broker and conveyancer shortly.
paradigmv wrote:Found this advice from BANTACS that I believe should answer my question above:"The basic rule is that the interest on a loan is only tax deductible when the money was used to buy an income producing asset or to refinance a loan that was used to buy an income producing asset."
Looks like the answer is YES – I can sell my PPOR to my wife for zero consideration, pay no CGT or stamp duty for the transfer, 'refinance' the investment loan secured against PPOR to include both our names, yet still claim as deductible 100% of the interest incurred by this loan as the original purpose (to purchase IP1 in my name only) remains unchanged.
Will run this by a tax accountant, mortgage broker and conveyancer shortly.
Yes, it can be done. Adding your wife to the loan will complicate things though. There is no need to add her, she can be guarantor. If you add her you will essentially be paying back one loan and taking another with her onlending the money to you – still can maintain deductibility though. You should have a loan agreement with her in place.
But don't use a conveyancer, you need legal advice!
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
Thank you very much for your help, Terry – will look for a solicitor who understands these matters well.
Yes Qld is wonderful in that respect.
SD Concession available even if Spouse owns a 100 properties.
Spousal transfer is something we do in conjuction with a couple of Accounting firms on a regular basis
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
You twice referred to reliance on Rolf's Somersoft comments relating to somebody else's incomplete information and different circumstances.
You also refer to finding a BANTACS article.
You also got some quick, free (but frequently unreliable) advice from the ATO phone line based on anecdotal facts you provide to them.
These are brief and limited context opinions of what might be possible theoretically.
Even if it was possible, would it be appropriate and what are the unintended consequences ?
When do you intend to actually take all your details to a professional adviser to get an opinion taking into account all your relevant facts ?
This is a major reason why I dislike responding to posts.
No amount of disclaimers in footnotes seems to count.
Cheers,
Rob
Fair call.
I've already taken steps to contact these professionals. Have found a tax accountant who can advise on how I can safely restore tax deductibility with the IP loan's surplus being put in the IP loan's offset account.
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