Hey all,
My PPR is on a 600sqm block and we have had some drawings and plans done for an attached extension/Granny flat (2 bed 1 bath) for $85k-ish.
what is the best strategy for us… If we want to move out and buy another house and keep this one for 10+ years:
1. Move out of the PPR now, switch to IP loan (interest only) and put tenants in. Then start construction on the extension/granny flat
2. Remain living in the house as our PPR to oversee the construction. Move out and convert to IP after construction so as to get the higher val for future capital gains tax minimization.
My main question is: when should we move out, and when should we build the granny flat/extension… are the costs fully tax deductible on our salary? is that tax a lump sum or depreciated like a new home…? and when do we switch to Interest only etc…
all goes well, we should get $420 p/w for house + $200 p/w for granny flat and we will only owe $380k total.
Some guidance for an aspiring rookie please.
Jimmy86 | Future Assist SMSF Specialists - Bris | Melb | Syd
http://www.futureassist.com.au/setupansmsf
Phone MeSelf-managed super specialist administrators and advisers
To my knowledge you will have to be pretty creative in how you apply for the granny flat permit if it is not for your real granny.
If putting in tenants, you may need to consider shared services – power, water etc.
I believe the permits expire (i.e. when granny goes, so does the dwelling). But you probably know this.
With option 1 you need to find out if you are subject to CGT (how long have you lived there?)
Option 2 to my (limited) knowledge would mean you will end up paying more CGT.
Good luck, keen to ehar how you go.
Seek tax advice. It is probably better to stay in it build the GF and establish it all as your main residence (if possible and then rent it all out. It could then be subjecct to the main residence CGT exemption.
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
having the front tenanted while building in the back may cause some problems with the tenant
Great point Made_Man, I didn't think of the impact on the existing tenant through the construction phase… Is it common to offer cheaper rent to subsidise or..?
Jimmy86 | Future Assist SMSF Specialists - Bris | Melb | Syd
http://www.futureassist.com.au/setupansmsf
Phone MeSelf-managed super specialist administrators and advisers
cheaper rent is an option however you would need to take in to consideration some of the below.
- builder does not leave rubbish around like they normally do and do a final clean up before handover.
- who will be paying for the water and electricity during the build as this will spike during that time.
- trades normally do 7:00am starts – would this bother the tenant.
i cant think of any more points at the moment but im sure others would come up with some.
You can put a special condition in the contract for the tenant prior to leasing the property. The condition should state that the tenant aware of the GF construction. They need to allow people to have access and carry the work. You can put a temporary electrical meter and pay on amount used and share the service charge. Water usage can be share with the tenant say you pay 20% for example. Make sure all your tradesman not doing their work on Sunday and starting after 9am weekday. All need to list in the contract. Base on my experience if they agreed to rent your place they would not be unhappy during the construction. We 've build a GF on one of our IP while we are renting out the front house. We did not have any problem with the tenant.
Personally I would live there while building if only so that you are close to the action and can see what and when things are happening.
Plus there would be less headaches than if it were tenanted.
What state are you in? I’ve no idea about the other states, but I know in WA you can rent a gf to whomever you so desire. There are limitations about the size though I’m not sure whst they are.
Is the granny flat detached or attached? If detached you could rent out and ask builder to fence off construction zone or you could just remain living there.
if attached you will have to live there as im not aware of any tenant who would want to live in a home under construction!
What state are you in?
Your right Matrix 5,
It will be semi-detached. Not much construction will be taking place close to the structure of the house, as the far wall of our garage will also double as one of the walls for the granny flat.
The property is on the Gold Coast (Southport).
Yeah i will definitely ask for it to be fenced off to minimize disturbance to us (or a tenant).
What would people do (if in higher tax brackets…)
1. Move out of the PPR now, switch to IP loan (interest only) and put tenants in. Then start construction on the extension/granny flat TO GET TAX BENEFITS OF 'CAPITAL IMPROVEMENTS'.
or
2. Remain living in the house as our PPR to oversee the construction. Move out and convert to IP after construction so as to get the higher val for future capital gains tax minimization..?
I realise not everyone is able to provide tax advice, but any personal similar situations…?
Jimmy86 | Future Assist SMSF Specialists - Bris | Melb | Syd
http://www.futureassist.com.au/setupansmsf
Phone MeSelf-managed super specialist administrators and advisers
Jimmy,
If it is semi-detached then it may be possible to live in the entire property for a short period. then move out and rent it and use the temporary absence provisions to have the whole property free from CGT for up to 6 years. Depends on many things though so seek tax 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
I would switch to interest only now. Put excess money in an offset if you have one or put it aside for when you buy your new home.
You are better having the current loan high and your new loan low as it's not tax deductible. Also take money from the loan to fund the build (or apply for a new loan) as it's also tax deductible. Do not use any of your own money.
For ease it's better to do it before you move out. Check the tax implications though. If you sign up tenants you will have to inform them of the construction and the fact that they will have other people renting there. That will scare people off which is why it's probably easier to do it before. And yes you will have to offer a lower rent.
Is the $420 what you would get now? Because it will be a bit lower with the granny flat there. Do they have separate yards? Are they going to be metered separately? If not how will the electricity/water bills work?
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