Hi F

I am not a tax agent, but ..

I beleive the interest on any borrowings for investment purposes should be deductible. So this should include interest on the portion borrowed to cover stamp duty and borrowing costs.

The borrowing costs themselves could be claimed over 5 years.

The stamp duty etc could not be claimed now as they are purchase costs and considered capital in nature. So these would be claimed against CGT if the place is sold.

If you borrow to make repairs, then the interest should be claimable. The repairs may also be claimable, depending on the nature. If it is an improvement, it may only be able to be depreciated over a certain number of years depending on whether it is considered part of the house (2.5% over 40 years) or a fixture (much faster depedning on the item, maybe 20% over 5 years).

I think borrowing a bit extra for unforeseen stuff is a bit of a grey area. It is like borrowing to make repayments, and capitalisation of interest. previously I would have thought this was ok. But in Dec the ATO issued a ruling saying it was acceptable, but removed it about a week later. So even they are confused.

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What you could do is live in the property initially, then your friend could rent it from you. You can then claim the expenses against your income, ie negative gear, and you may be able to keep it CGT free under s118-145 of the Income Tax Assessment Act.

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Yes. Because once you pay down a loan, if you redraw the money this is considered new borrowings and the deductibility of interest will depend on what you use the money for.

eg. You want to use the funds for a deposit on your own home.

And if you have no PPOR, why not move into your rental property intitially and take advantage of the tax laws to have it classed as your main residence. You can then move out and claim the interest and still be able to sell without incurring CGT.

You just have to know the rules and work around then.

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Hi
Do you have a loan on your own home? If so, all spare cash should be going onto that loan.

If not, then I would be inclined to borrow as much as possible and put any spare cash in a 100% offset account. You will get the same savings without the adverse tax consequences of paying down a loan.

Terryw
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Contact the Tenant’s Union NSW
http://www.tenants.org.au/

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You can onsell the place like a normal sale. But I beleive the vendor must allow this in their contract with you.

Settlement cannot occur until the place is complete, so your deposit will be tied up, and the deposit you receive will also be tied up until then. Also, the profit will be tied up too.

Think of the risks involved such as the property not going up in value, or even decreasing.

Watch out for sunset clauses. Some contracts have a clause where if the project is not complete in XXmonths, then either party can pull out. Some developers deliberately go slow if they know the market has risen. They then get the property back by rescinding yours and resell at a higher price to someone else.

And think about the opportunity costs. You will have your deposit tied up for 2 years and you will be thinking about qualifying for finance for 2 years, so this may mean you miss out on a few deals in the mean time.

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Hi Thai

With a HDT, it is the trustee that owns the property. The unit holders own units in the trust. If the unit holders borrow to buy their units, they may be able to claim the interest on their personal income. But it seems this is rather uncertain at the moment.

I think the unit holders will be able to claim the whole of the interest (subject to the uncertainty with the ATO). To justify their interest claims they must get an income from the trust. This may be in proportion to the value of the units compared to the asset. This would change over time too I suspect.

But with the other expenses, these are expenses of the trust. It is the trust that claims depreciation, land tax etc. These deductions are taken away from the rent. Because the trust is not paying interest it should have a profit and it is this profit that is distributed to the unit holders and/or beneficiaries.

(I am not an accountant nor do i use a HDT, this is my understanding of what happens and may be wrong)

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Trusts usually have a clause in the deed about which state laws they are governed by. I am looking at a deed now and it he governing law depends upon which state the trustee resides in, or where its registered office is (if company). Other deeds specifically name the state.

Other issues are stamp duty. Most states charge $200 stamp duty on the establishment of the trust. In QLD this is $nil!.

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I am in Sydney too.

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I think the best way forward may depend on what you are currently using the LOC for. If you have having your wage etc put in, then you probably should not use it for investments.

If you just have it sitting there, or have only used it for investments, then you could just take the deposits from this LOC and borrow the remainder, 80%, from another lender securred on the new house. The renovation money can come from the LOC too.

It can be hard to get money specifically for renovations. Lenders often want to know what you will use the money for and want to see council approvals etc.

Terryw
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