Hi all
I have lurked for some time though am a first time poster. Was hoping to run my proposed loan structuring on a second property by the forum to ensure I’m doing the right thing (apologies as I’m sure it’s been covered).
Basically:
– own a home in Melbourne which was PPR but is now an IP; IO debt of 600k odd and valued at 1.1m
– have bought a house in Sydney for 1.1m which will become PPR. have paid a 10% deposit out of existing cash and will use cash to pay the stamp duty
– plan to access equity of about 150k from Melbourne property, increasing that loan to 750k. Will use 110k to get Sydney PPR up to 80% LVR and have the balance available in offset for incidentals and to use where necessary
– will ensure there are two loans in place, each with the respective securityAm I missing something? is that the right idea?
Interested in any thoughts and thanks in advance!
Hi Ranger
Firstly welcome to the forum and I hope you enjoy your time with us.
Yes your theory is correct and I assume your existing loan on the Melbourne property is interest only.
Ensure the equity release is a separate loan and not an increase to the existing investment loan.Keep the loans separate and ideally with different lenders.
At this sort of loan amount you should be able to obtain a competitive rate of interest.
Of course having said all of this there may be another option to consider to maximize your deductible interest and reduce your nondeductible PPOR interest.
Not sure of your current marital situation but if you are married and the current PPOR is in joint names you might want to look at transferring the property into your sole name. You would look to buy out your partners share in the property and borrow accordingly.
The interest on the additional funds would be Tax deductible and could then be added to your deposit on the new PPOR.
Just make sure your Broker is aware of some of the tricks involved in such a strategy.
Cheers
Yours in Finance
0-40 Properties in a decade. Email for a copy of my API interview-
This reply was modified 9 years, 4 months ago by
Richard Taylor.
Richard Taylor | Australia's leading private lender
Hi Richard
Thank you for your very helpful response – it is much appreciated.
I have requested that the loans be kept entirely separate with their respective securities. It is all through the same lender however (NAB) – I want to ensure they are separate too to maintain portability of the facility in the future.
In terms of tax, I am basically resigned to the fact that only the 600k debt on the IP will be deductible (as the released funds are being used as PPR).
I am married and will own both jointly with my wife. Can you expand on the point re transferring into my sole name? I am not sure how the interest on additional funds would be tax deductible – do we not still look at purpose, i.e. the acquisition of PPR.
Again, your help is much appreciated.
Cheers
If you borrow to acquire property the interest will generally be deductible if that property is available for rent.
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
Hi Ranger,
Richard was right. I am with NAB and did the same trick with help of my accountant. I suggest you call Richard Taylor to arrange an appointment to understand the strategy. There are smart ways to get around. All you need to consider is what benefits you can get at what cost. Good luck!
Hi Ranger
Ok have to say NAB are probably one of the worst lenders as they won’t understand a word of what you want you want to do and from what I have seen with NAB retail their idea of not crossing your loans and mine are a mile away.
Assuming your current loan is 600K and the property value is 1M then you would be able to claim 800K of non deductible interest if done properly.
You would use the additional 200K as a further deposit on the PPOR to reduce your non deductible interest.
If you consider 200K at say 5% = $10,000 per annum so well worth getting it done right assuming it is a 25 year loan.
As i say your average Bank or Banker will have NO idea.
Cheers
Yours in Finance
0-40 Properties in a decade. Email me for a copy of my API interview.Richard Taylor | Australia's leading private lender
Get professional help Ranger – I’ve seen many bankers stuff this up!
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]
I have seen spouses who have transferred for no consideration. Result is a large loan with very little deductible.
Tax and legal advice is essential, Part IVA tax act considerations too.
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 all for the very helpful responses – apologies I have been offline a couple of days.
So I have basically arrived at the following position –
Loan 1: Current property, i.e. PPR in Melbourne turned into IP
Loan 2: Equity release of 150k from IPLoan 3, new PPOR in Sydney @80% LVR (some deposit having come from Loan 2).
On the lending side, is it possible to have Loan 2 just added to Loan 1 so that it is not separate? I.e. can I have just the one, bigger facility with the same security instead of having them separate.
On the tax side, I understand the benefit of transferring the IP into my own name is that I will effectively create a new facility, for the sum of Loans 1 and 2 (i.e. 750k), the purpose of which is now entirely investment related = i.e. all becomes deductible. The transfer itself is exempt from stamp duty (and will be deemed to have transferred for market value).
Does that all sound correct?
Again, thank you all your help with all of this – much appreciated
I think your understanding is lacking.
A transfer is not enough, it must be a transfer at full market value with the purchaser borrowing to buy. Otherwise the interest will not be deductible to the purchaser. Transfer will not be deemed to be done at market value other than for stamp duty calculations.
Loans must add up to the relevant interests to be deductible. Deductibility depends on purpose and use of funds.
You need both tax and 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
Saw one last year where the borrower had transferred the property and then borrowed 100% of the valuation trying to claim the full loan as a Tax deduction.
The ATO had queried it and in fact disallowed the interest on the whole loan.
Another good bit of advice from the clients NAB Banker.
Cheers
Yours in Finance
0-40 Properties in a decade. Email me for a copy of my API Interview.Richard Taylor | Australia's leading private lender
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This reply was modified 9 years, 4 months ago by
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