Hi everyone,
I recently put a deposit on an off the plan apartment in Wollongong. As a first home buyer I am eligible for the NSW government's $15k first home buyers grant for new buildings; however, part of the requirements is that I reside in the property for 6 months within the first year.
I am intending to rent the property out for aprox 2 years to pay off all the mortgage before moving in. So the question is, rather than having the property sitting empty for the first 6 months after it is constructed are there any ideas (legal ideas..) on how I could make money out of it. The only thing I have been able to come up with is a rental to a close friend paid in cash. Anyway, any advice would be appreciated.
James
It's called fraud. You will be given tax payer money to help you purchase a home not an investment. Your home insurance will be void if the property is uninhabited. Suck it it up and move in.
I wouldn't consider it fraud. If I were to have it as my private place of residence for the required 6 months and were to rent out the spare rooms to flat mates that would be perfectly legal.
Just wanted to see if there were any other ideas. Go easy.
cheers
Why not just live there? What will you be doing for the first 2 years? You could poissible make it CGT free by living in it initially.
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
It’s fraud as you need to declare that income. If you do declare income than they will know you have been renting out the property. It’s all good till you have a falling out with your mate and dobs you in. I’ve seen it happen.
Cheers for the responses, was just throwing it out there.
There's nothing stopping me from moving in initially (i should of clarified that I haven't moved out from the oldies place yet as I'm only 20). It's purely a financial decision as I currently have low expenses.
I am aware that it's illegal to simply rent the place out whilst claiming that I live there, however I was under the impression that if I were to live there for the 6 months that I could legally rent any spare rooms as long as I declared the additional income on my tax return…
@terryw – what are the regulations regarding CGT if I were to rent the unit until the mortgage is paid off, but with the intention of eventually utilising it as my PPOR? Is there a certain time frime that the premises needs to be utilised as your PPOR for it to become CGT exempt?
Ta
Not necesarily fraud if you are not living there. You would have to look carefully at the relevant legislation.
To avoid CGT you need to live in the property inititally. You could then move out for up to 6 years and keep it CGT exempt while rented out – depending on the circumstances.
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 a lot for the tip, I'll be sure to trawl all the relevant pieces of legislation to see what I can find.
see s118-145 ITAA 1997
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
Perfect, much appreciated.
Jim, be very careful on how you proceed with this.
It can land you in a lot of hot water with the ATO. and on the face of it (if you do not declare the facts, it is fraud)
As stated in requirements of the grant (which is a reasonable sum of money, please don't forget this. Its a privilege in Australia not a right) you must reside in the property for six months in the first 12 months of ownership after completion of construction
As Terry pointed out if you live in the property, and then it becomes an investment later on, and you sell (with in 7 seven years of you living there) the property may be deemed PPOR, thereby not subject to capital gains Tax (something to consider in your exit strategy)
Saying this as you asked for creative ideas, and I personally like to hear a slow yes than a fast no.
an option maybe to take on a boarder while you live there (ie a house mate). there is certain criteria they have to meet, however, the income will have to be declared, but you deduct their portion of expenses (eg power phone, gas etc), and you may meet the conditions of FHG and PPOR.
get the balance right (expenses = board)
Could be the win you are looking for. however check your facts first!!
Just on a side note (and perhaps a big learning point for you), buying a property as a home for yourself is NOT the same as buying an investment. please don't confuse the two, it can be very problematic, especially when it comes to financing and government grants
Please let us know on how to go
cheers
Ritchie
ritchiematheson wrote:Jim, be very careful on how you proceed with this.It can land you in a lot of hot water with the ATO. and on the face of it (if you do not declare the facts, it is fraud)
As stated in requirements of the grant (which is a reasonable sum of money, please don't forget this. Its a privilege in Australia not a right) you must reside in the property for six months in the first 12 months of ownership after completion of construction
As Terry pointed out if you live in the property, and then it becomes an investment later on, and you sell (with in 7 seven years of you living there) the property may be deemed PPOR, thereby not subject to capital gains Tax (something to consider in your exit strategy)
Saying this as you asked for creative ideas, and I personally like to hear a slow yes than a fast no.
an option maybe to take on a boarder while you live there (ie a house mate). there is certain criteria they have to meet, however, the income will have to be declared, but you deduct their portion of expenses (eg power phone, gas etc), and you may meet the conditions of FHG and PPOR.
get the balance right (expenses = board)
Could be the win you are looking for. however check your facts first!!
Just on a side note (and perhaps a big learning point for you), buying a property as a home for yourself is NOT the same as buying an investment. please don't confuse the two, it can be very problematic, especially when it comes to financing and government grants
Please let us know on how to go
cheers
Ritchie
Ritchie you are confusing state law with commonwealth. Duties and FHoG grants are state law and administered by the OSR not the ATO. INcome tax, GST and CGT is commonweath law and administered by the ATO.
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
Ritchie, thanks for the reply. I'll take all of your advice on board.
Yeah that was the dilemma I faced when considering this purchase. As a pure investment the numbers stack up pretty well; however, I was also looking for a location that would be convenient for me when I did need to move in permanently. The clause on absences that Terry pointed out was interesting; I was always factoring in CGT upon sale when I was considering this option.
Anyway I'll make sure I have it all covered by the time settlement comes around. Cheers again.
Don't forget the insurance issue as already raised in a previous post "Your home insurance will be void if the property is uninhabited."
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Thanks Terry, no I did not make that distinction in my post, but wasn't really where I was going
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