It does make a difference.

The house wouldn't (probably) be CGT exempt for the first 5 years it was rented. So you would need to factor this into your calculations.

I also forgot to mention another possible way.

Get a LOC set up and borrow to all expenses associated with the PPOR from the date it becomes a rental. If done properly you could even borrow to pay the interest on this small loan. This will free up cash to pay into the new PPOR loan and will gradually help you pay it off faster by decreasing the non deductible debt and increasing the deductible saying you tax.

it is in the bank's best interest to cross your loans – not in your interest at all.
 

Thats pretty much it. You can only claim costs assosciated with the investment, so if you borrow to buy half the interest on this half should be claimable.

If you want to keep the house then another option is to sell it to a trust you control – but further tax implications here.

Probably the easiest solution is to sell it and then buy a new one soon after settling on the new property

I suggest you do the figures for 10 years with different rates for growth etc.

Also consider selling the investment property, paying down non-deductible debt and then reborrowing and buying a similar property again – but this time your tax deductions will be much larger with the only loss being the stamp duty and selling costs.

There are tax and asset protection implications on doing this.

Firstly, if you gift to a trust it is not returnable, but can be clawed back in some instances. However, if loaned to a trust the money is always returnable to you. Therefore lending is less safe from an asset protection point of view.

But there are tax implications. If you currently have unpaid personal loans then you would probably be better paying these down first rather than gifting to a trust. But you trust needs running expenses covered, so you may be better off borrowing from a LOC and onlending to the trust. This will help your trust claim even more deductions (which may not help now, but will in future) and it will help you pay off personal debt first – saving you non-deductable interest

And then pay more in CGT when you sell. Land tax differs from State to State, so an answer on how to minimise it would depend on which state you are talking about.

Spreading you purchases out over several states can help too.

You won't find it explained anywhere really. It is basically just borrowing to pay interest. It has to be set up correctly and you might need a private ruling from the ATO  to prevent them claiming later that it was a scheme to save tax. it is best to speak to your accountant – if he says it can't be done come back here.

I agree that it should pose no problems if all the LOC is used only for investment purposes.

But if you have the option why not split it up into several sub accounts in case you wish to use one for private expenses later? You may also want to capitalise interest on one and keep it separate in case you have problems with deductibility later it will be clearly distinguishable.

I wouldn't buy in a country town. There are plenty of cheap houses in Sydney and these would probably have more growth potential in CG and rental increases. Try Campbelltown and Mt Duritt areas – my mate just sold a 3 bedroom house in Whalen, near Mt Duritt for $220,000 – think it was renting for close to $300 pw.