Special Levy.. Best Solution For Me

interesting question…..so is a special levy deductible if the property is rented at the time of payment or when youa re first made aware of it.

(btw a third option you didn’t take into account is rent out both properties and go and rent somewhere else……
I guess a 4th option is…….rent out both properties and go and buy a new PPOR, but if you are having issues coming up with the $25k special levy……buying a 3rd property as your new PPOR isn’t really an option).

is this a problem the building had when you purchased even if it wasn’t known
is what the levy is doing a repair or an improvement as defined by the case law

If so this could likely have been discovered pre purchase by asking to see the last 2 years AGM minutes and financials as this will have all the dirt on what needs to be done to the building now and in the future.

Could even use it as a bargaining tool in a depressed market if property not selling if you know of upcoming repairs and special levies etc.

Hi Sundipb,

As I am not an adviser, the best I can do is to slap on my “reasonable man” hat to see if some thoughts might be valid (they WILL need to be checked with those that really know, but hey, if what I say is Reasonable, maybe the ATO might see things the same way?)

You have owned the property for 9 years, and will be needing to find $25k to fund what is (obviously?) a maintenance issue. Now, as always, a PPOR buyer is way out in the cold for ANY expenses, whether they be for maintenance, rates, insurances, mortgage interest, anything. On the other hand, an investor has the advantage of being able to claim many expenses against their income.

So, if you suddenly become aware that it is TO YOUR ADVANTAGE to rent out your PPOR and to rent someone elses’ place, then surely you should be able to do that. This would then mean that most/all expenses are suddenly deductible. Nothing new there – people do it all the time. And you even have an Offset account that will likely HELP that change to go ahead.

Now, re the “deductibility” of the Special Levy – like all other expenses, this is one that “should” be deductible to an investor. I would think the ATO’s only objection might be that you could be changing from PPOR to IP as a “scheme”. Of course, a private ruling would cement that. For now though, why not look to see just what other benefits might come if you DID make your PPOR into an IP. Just like “It is the taxpayer’s duty to pay the minimum legal amount of Tax” (Kerry Packer?) isn’t it also our duty to save ourselves the most amount of hassle, and lower our expenses by whatever legal means are at our disposal (and that should include turning a PPOR into an IP if it sensible to do so – not a scheme, but a business decision).

There are a few pros and cons to consider in all of this:-

1. It might be that you can rent closer to work, saving money and time in travel
2. It also might be that your expenses for your old PPOR are now suddenly “deductions”, putting $$ in your pocket. How many? You tell me !! :p Savings that can go toward your new rent !!
3. You might change your P&I repayments to IO (and continue to use the Offset to save $$ – effectively “paying down the principal”)
4. If you go and rent, you can retain your PPOR CGT exemption for a further 6 years on the new IP.
5. But, if you BUY a new PPOR, rethink 4. as it will change !!
6. If not wanting to rent, you obviously have enough equity to buy another PPOR – but what about serviceability (DSR?)
7. You could always SELL the PPOR now – no CGT problem, but maybe a $25k lower sale price to offset the Special Levy that will hit the new BUYER.
8. Could a partner be a “new Buyer” of the PPOR, as an IP? What advantages might come from that? I need help there …..

Anyway, that’s me – let’s see if any thoughts stir the pot a wee bit to make a nice stew !!! :p

Benny

How do i go about switching my IP – > PPOR and my PPOR – > IP ??

Really depends how your original structure for each loan was set up???

Ideal structure for PPOR would have been interest only with an offset account therefore preserving the original principal and maximising the interest deductions once converted to an IP.

Did you set it up like this or have you been using redraw facility. That is putting money in the home loan and redrawing it?

What are the tax complications with this? And how will this affect my tax deductions???

Hard to say until we know your original and current loan structure?

Im going to assume you IP is interest only? If so you link an offset to it and keep it IO and store savings / principal in the offset never actually reducing the original debt unless for other reasons such as debt recycling or serviceability reasons to name the most common.

• This reply was modified 8 years, 3 months ago by  Colin Rice.

Have you been using redraw facility. That is putting money in the home loan and redrawing it or just making min P&I payments?

• This reply was modified 8 years, 3 months ago by  Colin Rice.

You need to change your PPOR to IO and delink offset and link to IP that will become your new PPOR assuming you are at same bank.

Make sure your loans are not cross collaterlised. Looks like the are? You can check the original loan agreement under securities and if 2 properties are listed it x-coll and you need to tidy this up as the deeper you go the harder it can be to restructure. With the recent changes to lending criteria in some cases it may not be possible or limited options.

At the risk of sounding biased you need to dump the NAB loans officer and get an IP savvy broker on your team. There are a several to chose from on here.

I have a hand out explaining the reasons not to cross collaterlise. Email me for a copy.

1. Change PPOR loan from P&I to IO only.

Should be. You will have to contact the branch lender on the process involved.

2. Delink offset from PPOR to new PPOR.

Correct and move any savings into it as you want to offset non deductible debt first.

3. Do i start making P&I payments in the PPOR or keep that as IO as well?

Up to you but need to realise that if where to convert this to an IP in the future by going P&I you are reducing the principal therefore reducing potential interest deductions.

Me personally, I keep all loans IO but need to be careful advising others with this due to responsible lending. If you have a legitimate reason and are disciplined with finance should not be an issue.