Hi all
Not sure if this is a question the Tax Accountant can answer or if this should be answered by a lawyer or maybe the Bank (less likely).
Anyway, situation is I have a PPOR which has some equity that I’d like to be released as “standby money”, in other words preferably in the form of a “second loan” rather than “top up my existing loan”, and the second loan in the form of “offset + Interest Only”, and I will just park the loan in offset (so it generates 0 interest and because it is IO, this means no monthly repayment until I actually use that money).
Now, I have been to the bank (ANZ in this case), who unfortunately informed me they are not able to release such equity unless I get a better job with a bigger pay.
I then approached a few brokers who advised it is in fact possible, but to do so I will need to refinance my home loan to become residential investment loan. The idea is because my current loan is a home loan, which means I am not expected to get rental income. However, if I refinance it to become an investment loan, the expectation is I will have rental income for this property and as a result the combined total of rental income and my job income makes it possible to draw those equity out. When the application to release equity is being processed, I can change my street address to my parent’s home (my parents live like 5 minutes away from me), and change the street address back after the loan is approved and equity money is given to me.
Now, that’s all good and sound, except now I have a few questions:
1. Does the bank really care if I refinance it as an investment loan and then subsequently still live in it myself after the loan is approved? Or do they only care about me making repayment on time?
2. What about from Tax point of view, if I sell the property, will Australian Government (ATO for example) consider my property to be:
a) An investment property even though I actually live in there myself (with power/gas/water bills all under my name rather than anybody else’s name and my driver’s license indicating my own property rather than my parent’s property) simply because the loan applied with the bank is an investment loan, and therefore charge me capital gain tax?
b) Still treat that as my PPOR because I am living in it myself, and don’t care if my loan is financed as a home loan or an investment loan, and therefore no capital gain tax when I sell it in the future?
Really want to know if ATO will treat as a) or b), as if they treat it as a), then I’d rather not take this approach.
3. Will I be charged land tax too?
1. Deliberately lying on loan application ie saying there is/will be income (rent) that there won’t be. Obtaining money under false pretences.
2 & 3 No effect from CGT or Land Tax1. Deliberately lying on loan application ie saying there is/will be income (rent) that there won’t be. Obtaining money under false pretences.
No, because I will be moving to my parent’s place when that happens.
But what is stopping me from moving back to my own home after say, 1 year or 2? or after 6 months?
I mean people can change their minds about where they want to live a lot. I could be buying a PPOR home, and a few months or years down the track I decide I like a different area better so I rent that home out where I move myself.
Likewise I might buy an investment property and move out myself, but sometime later I decide I still like my original property better so I move back myself.
I don’t have a problem with relocating to my parents’ place, but who knows some time later down the track have 3 generations living under the same roof may not work out very well so I just end up moving back to my own property again.
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This reply was modified 7 years, 2 months ago by
Steven.
What really annoys me in this scenario is that:
I went to my bank, sat down together with ANZ’s banker (also happens to be a “senior banker”). Did our calculations.
When he checked my personal bank account’s transactions, it is so bluntly obvious that between my and my wife (we both bank with ANZ), after all the monthly repayment and our spending, we still save additional some $3K per month and put those into our offset account to offset our PPOR home interest.
Even when we do take the equity release and the additional monthly repayment of equity release into consideration, the bank’s spreadsheet shows we can still save more than $2K cash per month after all the calculations…
And yet, the answer I am getting is “sorry, your history statement and your ability to save that much money in reality does not count when we do our assessment. We only use our own figure”. In other words, we have a proven track record of our living expenses in detail, that is traceable in ANZ’s banking system and yet, they ignore that and think our living expenses is at an “assumed figure” that is much higher than what is realistically happening. Makes me wonder why bother looking at our transaction history when they are not using it as a source of truth.
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This reply was modified 7 years, 2 months ago by Steven.
Legal questions – a tax agent could answer question 2.
1. Obtaining a financial advantage by deception is a crime so banks would care if that is what you are doing.
2. Tax is based on what is done with the property and not what you have told to a bank.
3. Land tax is based on whether you reside in the property or not.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
What really annoys me in this scenario is that:
I went to my bank, sat down together with ANZ’s banker (also happens to be a “senior banker”). Did our calculations.
When he checked my personal bank account’s transactions, it is so bluntly obvious that between my and my wife (we both bank with ANZ), after all the monthly repayment and our spending, we still save additional some $3K per month and put those into our offset account to offset our PPOR home interest.
Even when we do take the equity release and the additional monthly repayment of equity release into consideration, the bank’s spreadsheet shows we can still save more than $2K cash per month after all the calculations…
And yet, the answer I am getting is “sorry, your history statement and your ability to save that much money in reality does not count when we do our assessment. We only use our own figure”. In other words, we have a proven track record of our living expenses in detail, that is traceable in ANZ’s banking system and yet, they ignore that and think our living expenses is at an “assumed figure” that is much higher than what is realistically happening. Makes me wonder why bother looking at our transaction history when they are not using it as a source of truth.Banks will need to stress test your ability to pay. They are probably using around 7 to 8% PI payments and basing your spending on standard indexes. Failure to do so would be a breach of the law – your brokers are probably breaking the law (NCCP) by suggesting a scheme to get around this.
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
1. Obtaining a financial advantage by deception is a crime so banks would care if that is what you are doing.
Ok, that makes sense, but what about the scenario I described above concerning when moving in with my parents don’t work out well after a few months? such as this example:
1. I move to my parents’ house later this year and apply for equity release.
2. Suppose the application is successful and equity is released in January.
3. I then try to rent it out but the house does not get rented out (Because this was my PPOR, so I am quite fussy about the quality and condition of the tenants, and unfortunately I don’t like the tenants who come to inspect the property and / or I like the tenants but they do not like my home).
4. Then by April I realize having 3 generations living under the same root causes a lot of family problems, and since my own property is still not rented out successfully yet, so I stop trying to rent my own home out and I move back to my own home.
5. All the while I still make my repayment perfectly, timely and fully.
What will the bank do about me if the above is the case?
1.
What will the bank do about me if the above is the case?This is something to ask the person giving you credit advice. The bank will probably do nothing as you will have a 30 year loan term and probably have not committed any default.
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
This is something to ask the person giving you credit advice. The bank will probably do nothing as you will have a 30 year loan term and probably have not committed any default.
Thanks.
I won’t go down this path then.
I don’t need the equity released urgently, as the investment I am looking into won’t happen until sometime in Feb-March next year, so I will try to work out something else instead.
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This reply was modified 7 years, 2 months ago by
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