Hi,
I live in a property in NSW that I built in 2011 and want to retain. It cost me 850K to build and I have progressively paid it down. I only owe 430K on it now.
I have been offered a good job in QLD that I am accepting. I want to use this as an opportunity to buy a property in QLD, and rent out the one in NSW.
The problem I have is that I have paid down the NSW property and therefeore it is not as tax effective as it could be. I need advice on the legally correct way to draw down this money so that it is tax deductible ?
One suggestion from my accountant was to draw down the funds and put into a Managed fund. When I find the QLD property I could sell the Managed Funds to use as deposit, but the NSW property would be more highly leveraged as a result.
Is the above correct ? If not, is there another way to achieve the same outcome.
Thanks in advance,
Majic
Not correct. Your accountant doesn't seem to understand tax!
If you borrow to buy the managed funds you could claim the interest. But, if they managed funds are sold you could not claim the interest from that point on.
You may be better off selling the property and starting again..To save a bit in fees, you may want to consider selling to a spouse or a related trust. In Vic spousal transfers are duty free, but not in NSW.
This is a common problem people get into.
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
You need to get expert advice elsewhere Majic – I'd give Terry a call.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Hi Majic,
Think long and hard before doing anything.
If (as it sounds) you want to use this as your first IP, it can work – but as Jamie said, call on a knowledgeable person who can discuss the pros and cons of each option. It seems you have a few :-
1. Sell this one to start again….
2. Keep the current PPOR to rent out and retain it as your PPOR for up to 6 years without losing CGT exemption.
3. Look at renting in Brisbane, but purchase another IP or two.
4. Buy a house in Brisbane anyway, but DON'T nominate it as your PPOR, as it may become another rental IP later.
A period of renting will do a couple of things:-
a. It will allow you to rent where you want to be (close to work, schools, transport, etc)
b. Will allow you to learn about Brisbane should you (later on) wish to BUY a new PPOR here.
c. It will buy you time to consider just what your next move SHOULD be – knowledge is key !!!
Seems like you are in good shape, Majic. Well done thus far,
Benny
Thanks all for your input. I went back to the accountant and it seems we had both misunderstood each other. I am glad I asked here and that prompted me to go back.
His suggestion now is along the lines of Terry's – i.e Transfer 50% to spouse – although this is going to be tricky as my wife has no income, which means that I will need to guarantee that portion of the loan as well.
I do concur that all options lead to very different outcomes, and therefore keen to get advice on the right outcome. Jamie, I might give Terry a call as you suggest – and may need a good mortgage broker as well to setup the right structure.
Regards,
M.
I may be clutching at straws here but here is a question.
Can I redraw the money available in the loan in order to improve the situation ? Does it help if we do this while I am still living in the house as my PPOR. ?
Does the structure of the loan matter when doing this ? In my case, I have the loan split three ways. Two of these are (worth 150K) are not drawn down.
Thanks in advance.
M
All comes down to purpose – what are the funds that are being redrawn used for? If it's for investment purposes it will be deductible. If not, it won't.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Majic wrote:I may be clutching at straws here but here is a question.
Can I redraw the money available in the loan in order to improve the situation ? Does it help if we do this while I am still living in the house as my PPOR. ?
Does the structure of the loan matter when doing this ? In my case, I have the loan split three ways. Two of these are (worth 150K) are not drawn down.
Thanks in advance.
M
As Jamie mentioned, unless the redraw is for investment purposes then the money won't be deductible. If it was that easy everyone would try to do what you are suggesting.
Assuming the $430K was from the original loan and no funds were ever redrawn out of it for personal purposes, the interest on that would be the maximum that could be claimed. That is unless you do sell to a spouse, etc.
Would also be advisable to change the loan into interest only as well if it isn't already.
Cheers
Tom
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