Hello,
I'm a newbie to the forum & the question is long, but your advices would be appreciated.We've no mortgage on our current property A (in husband&wife names), but have a big loan for building a new property B.
Current property A: bought 1/7/2000 $200,000; value as of 1/7/2011 $400,000; no loan.
New property B value $800,000; loan $600,000.Please let us know if our plan as below is legal.
1. Transfer our current property A from 2 names to 1 name, obtain a Sworn Valuation & convert the property into an investment and borrow 50% of the property A value ($200,000) as property investment loan (interest is tax deductible). I am told transfer from husband&wife to wife name only is exempted from Stamp Duty in Victoria. What's the correct procedure for doing this?2. We move to the new property B as the new PPOR.
If we have trouble paying the loan later on, we would either:
(a) Sell the new property B, then move back to property A. I assume we don't have to pay any CGT as property B is a PPOR only. Is that a correct assumption?
or
(b) Sell the investment property A (say for $450,000). Would we then pay CGT on $50,000 gain since the property becoming an investment property, or do we need to pay CGT on the $250,000 gain since the original date we bought the property 1/7/2000 (then pro-rata using number of years as PPOR to number of years as investment)?Many Thanks.
1. It is legal, but you have to consider if the interest in doing this will be deductible. You should seek legal advice and tax advice and maybe even private ruling. If the dominant purpose is to reduce your tax then the ATO could deny the interest deductions.
What you would actually be doing is selling your half to your spouse. He or she would borrow the money to buy your half. You would need to reapply for loans and pay exit fees and application fees again. You would also need to do the conveyancing or have a solicitor do it.
You should also consider selling to a unit trust. This is my preferred way to buy property now. You or your spouse can borrow to buy the units. The whole value of the property could be borrowed and the whole interest on the loan should be deductible. Later on you can let the trust redeem the units and the trust can covert into a discretionary trust. This offers huge advantages. firstly interest will be deductible and you can pay off the new PPOR, secondly your trust can borrow to buy back the units later on and the interest on ths will be deductible. You would have to pay CGT, but then can be reduced by various strategies. The units could even be transferred to third parties, possibly even a SMSF, and possibly wihtou stamp duty. If your SMSF could own the units then the rent could be received tax free when you are in retirement.
This is a complex structure and you may also have trouble getting finance. So you should seek expert advice before hand. It is also possible the ATO could deny the interest deductions – if that is the case it may be worth selling this property completely and buying a new one in the unit trust.
If you sell property B it will partially have CGT as it was not you main residence up until now – or when you move in.
If you sell A it could be totally CGT exempt. depending on the circumstances and when you sell
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
Terry,
Many Thanks for taking the time to provide the advice.
We don't know much about Units Trust, so will need to research a lot more. If we sell to a unit trust, do we to pay Stamp Duty?Your advice about SMSF is quite attractive to us as we have a SMSF with me & my wife as members. If our SMSF has enough cash to pay for the market value of property A, do we allowed to transfer property A to our SMSF? and would Stamp Duty be exempted as the SMSF belong to us?
We're trying to find the best way to keep property A, because it's a house that we want to live in when we retire in about 10 years.
Thanks again for your time.Yes you would pay stamp duty when you sell to a unit trust, or other trust. Full market rates too.
It is not possible to transfer a residential property you own to a SMSF in which you are a member, but it would have been possible to transfer units.
If you want to keep A then it may be better to just transfer half to one of you. But that would only release about $200,000 so you will still have a $400,000 loan on B. Then again if you sell to a unit trust you could reduce this loan to $200,000 by freeing up $400,000.
Interest on:
$400,000 = $28,000 pa
$200,000 = $14,000 paIf you are paying say 30% tax then 30% x $14,000 = $4,200 saving pa.
What is the stamp duty on the full transfer and is it worth doing for the annual savings?
Also consider in future you may be able to transfer the units to your smsf.
Make sure you get expert advice as this are very rough ideas and smsf laws are very complex.
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
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