I helped a client in a similar situation.

They had a fully paid off main residence worth $1.2mil. They bought a new main residence for $1.2mil and had to borrow about $1mil to purchase it. That meant about $50k per year in non deductible debt while they were also paying tax on the $30k positve cashflow of the existing property.

Solution was that we sold it to the trustee of a unit trust with the individuals borrowing to acquire the units. So basically they borrowed $1.2mil and used this money to pay down their new main residence loan. $50k more deductions per year and no non-deductible debt.

In NSW they also get the land tax threshold.

We had private rulings from the ATO saying the interest was deductible and that Part IVA would not be used to deny the deduction.
OSR rprivate ruling was obtained so that we could be sure the land tax free threshold could apply.

There was no CGT on the sale to the trust. Only stamp duty – which they borrowed to pay.

Joint owners are considered one owner for land tax purposes in NSW, so they don’t get one threshild each but a combined one.

Then if they own other property on their own their share of the joint property is taken into account so that they are not double taxed.

It is all very confusing.

This is why 2 people owning a few properties in in NSW will pay much less land tax than if they owned jointly.

Note that QLD is totally different

if you do this without a solicitor you will get into trouble.

Under state law a residential lease has a minimum term of 6 months…The solicitor doing your conveyancing should be able to assist with a licence to occupy for a little bit more than you are paying for the conveyancing.

You are buying an option on someone else’s property. They, the owners, are then finding a buyer to sell the property to. The buy would pay the owners a fee and because you have an option on the property the owners would have to pay you a fee to prevent you excerising your option.

It could work in NSW. No licence would be needed by you or by the owners for this.

The biggest impediment would be stamp duty.

Anthony Zanatta wrote:

Terryw wrote:

You will also need some tax advice on the loan structure. Borrowing and parking in the offset wil create another mess and the loan interest won’t be deductible – even if it is eventually used to invest.

Hey Terry, slight sidetrack here (sorry OP) but you’ve piqued my interest (no pun intended), would parking sleep at night funds (savings) in an offset account also result in loan interest not being tax deductible???

Nope that is fine.

Very unlikely you would be the sole beneficiary of a trust – unless it is a bear trust.

Ideally you would want to borrow to repair or improve an investment property – unless you have no non-deductible debt perhaps.

Richard’s idea is good. Perhaps you could use a related party loan to pay the tradesman and then refinance this with the bank once complete.

He should seek specific tax advice.

There is no minimum period legiislated to make a property the main residence. It is not 6 months. Receiving a deposit will not generally be a separate tax issue. It is generally the date of entering the contracts (but not always).

It will depend on the circumstances. Just using the property is not enough. It must become the residence.

Its simple really

Lets say you have a $100,000 investment loan at 4% pa and $20,000. Depositing the $20,000 in the offset account will save you $1,600 in interest per year. This means you have $1,600 in extra income and will pay tax on this.

Now if you put $20,000 in a term deposit at 4% you would have $1,600 per year in extra income and would pay tax on this.

Therefore you would only consider a term deposit over an offset account if:
a) the rate on the TD is greater than the rate on the loan, or
b) there is a spouse on a lower income who could invest in the term deposit and pay a lower rate.