I have done this myself and seen many others do it – none have lasted beyond a few years. So from the begininning plan it assuming one of you will want out in a few years.

There are a heap of issues to consider such as asset protection – what if the other guy goes bankrupt or a family law type claim and  his/her partner slaps a caveat on the property (- this can happen even if a company or trust).

You will need a written agreement regarding the:
– expenses
– stamp duty on one exiting (does the remaining person pay?)
– CGT (if u use a trust and one wants out ownership may not change so the remaining person may be lumped with it)
– equity – how do you use it and when?
– time – one may resent the other as he/she won't put in the same time, but expect the same split
– changing loan if one wants out -can the other service?
– what if there is a loss when pulling out?
– initial contribution – who and how?
– negative gearing – if one has a higher income he may get more tax benefits back – is this fair?

Have a think about structure. Using a company as trustee may allow one person to back out without having to change the title. So much easier, but then you may have more land tax to pay and then the losses cannot be used to offset your personal income.
If you use a discretionary trust then the trustee can distribute to the lowest taxable beneficiary – should this be done, or split equally?

Loans – who guarantees the loan? 1 or both? using 1 may assist serviceability later, but does the person guaranteeing get compensated for their risk? If both guarantee and one leaves will he want to remove his guarantee?

Many things…

I think you need a QS or a qualified and registered builder to do an estimate. Or you could probably use the original costs – if you know. You shouldn't worry about the cost of a QS as it is deductible and they are bound to find many more items than you would on your own.

No love and affection are needed as this is for transfers between spouses!. There is no number limits listed in the legislation, so it should be unlimited as long as you can meet the requirements.

Unit trusts offer virtually no asset protection benefits and no tax benefits. But it may be a way for you to convert non deductible debt into deductible by selling to the trust – stamp duty will apply, and maybe CGT too.

You also may be able to transfer the units without stamp duty later on, depending on the state your trust is established in.

It may work for you, just make sure you ask some hard questions and know the facts before proceeding.

Hi M

Thats good news about the CGT. But, may I ask, why would you buy using a unit trust? Did the accountant give you reasons?

That should be ok, it will work similar to a LOC. If the money is withdrawn and placed back into the loan the balance will be nil. its like you have repaid the loan.  Then you later withdraw it when you need it and it will be new borrowings

Hi Ryan

You would only be transferring half the house so stamp duty on this portion only.

Yes.

Ideally you should have a separate split on your loan for taking out the 20% deposit. If you don't you will be mixing business and personal loans and every repayment you make to your home loan will also be paying off this debt which will reduce your tax savings.

There will also be issues with you borrowing money and placing into an offset. If you subsequently take these monies out and invest the interest may not be deductible as you may be breaking the connection between borrowing and investing – by placing in a savings account the funds will no longer be borrowed, but cash savings.

I think there are a few things to consider here

Whether or not there is a mortgage you have borrowed money from your parents. If it is a loan it is returnable. So of they go bankrupt you will still have to return the money to their bankruptcy trustee. If you go bankrupt they have to chase the money from your bankruptcy trustee.

Having a mortgage will help clearly establish it is a loan, and a loan agreement will establish the terms of the loan. If they don't take a mortgage they will be unsecured creditors. It is possible that someone could get ahead of them in priority and they may not get back the full value of the loan.

If there is no mortgage it may also be harder to argue later, if bankruptcy happens etc, that this was a legitimate loan. When bankruptcy happens many argue that all sorts of loans where entered into with family members.

If your parents gifted you the money then there may be issues with the claw back provisions of the bankruptcy act later on.

What you tell a bank on a loan application may also come to light later on. So if you fail to tell the bank you have a debt to your parents and then later go bankrupt you will be arguing that you did have a loan, but the creditors will be arguing you didn't and they may be able to subpoena documents to show you never declared it.

Also think about family law issues – if you get divorced or separated.

hi Reginald

I don't own units myself, but would think you may have a value on your rates notice or will receive a land tax assessment notice.  Remember it is only on the land value and if there are 40 units, then each value will be very small. You may also get the land tax free threshold in some states.