Hi WC

lets think of an example. house sale price is $80,000, but the contract is bumped up to $100,000 with a $20,000 rebate if the settlement occurs by xx/xx/2008. Bank sends valuer out and he sees the contract price as being $100,000. He may value it at this amount. Bank then lends 80% which is $80,000. So the purchaser is getting 100% finance – with No LMI too. Bank thinks it is 80% LVR.

That is why some consider it to be deceiving the bank.

Back to the ATO side of things. You received $80,000 in the end, so you should pay tax on the $80,000 figure.

BTW, the purchaser would pay more stamp duty in something like this.

Hi Luke

Sounds like a classic rebate.

Say you sell for $100,000 with a $20,000 rebate, then the real sale price is $80,000.

Yes, family members can still make a claim on his assets, despite what is in his will, if they feel hard done by. Trust assets do not form part of your estate when you die, and so can't be willed. But transferring them to a trust now will mean they are being sold and so you will have stamp duty, legals, and CGT on the investment. PPOR in a trust will also not receive the CGT exempt status, plus there will be land tax issues. He would need to get the loan changed too and this would entail reapplying and proving income etc.

There may be other ways to protect the assets like you or another relative taking a mortgage over them, or second mortgage so that if they are attacked, there will be no equity left. Maybe a trust could do this too.

better talk to a good lawyer who specialises in succession issues.

There are many things to consider
– such as why have 2 directors = twice the risk and inflexible with borrowing.
– In NSW there is no land tax free threshold for trusts, so you will be paying more with a trust.
– Trusts cannot distribute losses.

I still think that discretionary trusts are worthwhile, but they can be painful in the early years, especially if you have no other income in the trust to offset the loss. But if you think of the potential tax savings in the future, as well as the asset protection issues, then I think they are worth it.

Beware of Hybrid trusts, most existing ones will fail ATO scrutiny, and the ones that do pass will be not much better that buying in your own names. They can allow negative gearing, but the deed has to be worded in such a way as to make all of the income and capital gain go to the unit holder. This is not ideal when the asset is sold or the income is more than expenses as the unit holder will be stuck with the income and more tax.

So you have given a rebate? This is common and you must take the rebate into account – I am not sure where you would do this, but think the sale price would be adjusted down to reflect the actual price paid.

I am fond of the idea of living off equity.

Whether it is better to sell or borrow would depend on your view of the future of the market i think. If you think it will be flat, then it may be better to sell. If you feel that growth will be great than the extra interest incurred, then it may be better to keep.

No Docs and even Low Doc loans are getting fewer and harder to qualify for these days which makes it hard. But will increasing rents you may be able to qualify for normal loans – many lenders allow interest etc to be added back to serviceability calculators. You may even have to get a job for a few months to qualify for a loan – and then quit. Maybe you have a family business which could assist.

Increasing loans will mean more interest, but I am sure with some creative thinking you may be able to make this tax deductible, all of it or most of it. eg. you could capitalise certain loans, borrow from a LOC to pay interest on other loans and borrow for expenses leaving more of your rental available to live on.

it would help if you had multiple structures owning the properties as it is easy for one to borrow from the other etc.

You will need a good accountant who understands tax – not many do.

Looks like Macquarie Mortgages have just put up their Low Doc loan rates again, as well as the full doc rates. They have their clients over a barrel – high exit fees, and they are not looking for anymore loan customers, so what have they got to lose:

1) Verified Income (full doc) loans
Existing business and pipeline loans
Borrower rate increased by 15bps

2) Stated Income and Self-Certified (low and no doc) loans
Existing business and pipeline loans
Borrower rate increased by 15bps

I wouldn't bother doing any course at all. Everything you need to know is out there in this forum and on the internet. Save your money for investing.

Hi Grant

There would be a few ways to structure it depending on whether you want the money back or not. If you want the $30,000 back then you will need a loan agreement. The sale price will be $300,000 with a separate loan from you to the purchaser for $30,000. Banks should be fine with this as long as it is declared as many lenders now allow the deposit to be borrowed. Any repayments for the small loan will have to be considered in the serviceability calculations too.

You will also need to consider what sort of security are you going to take to protect your interests – eg 2nd mortgage – the lender will also need to give permission for this to be lodged.

If you are selling properties as a business then you may be deemed a trader and the properties as trading stock. Then CGT would not apply, normal income tax would instead.