It depends what you want to do long term. If you never intend to return to your home, it may be better to sell. Otherwise you will be paying rent with after tax dollars and then be paying tax on the rental income.

Terryw
Discover Home Loans
Mortgage Broker
North Sydney
[email protected]

Martin

A trustee can be a beneficiary. I am a trustee of my trust and a beneficiary.

Terryw
Discover Home Loans
Mortgage Broker
North Sydney
[email protected]

regarding the capitalising of interest on an investment property, then this is not necessarily a no no.

I have heard that one person was paying an investment loan with a LOC (no it doesn’t have to be a LOC!!!). She then only pay the interest on the LOC.

eg. $500,000 loan, monthly interest is $2916. This interest is paid with money drawn from a LOC. ie it is borrowed. In the first month, the interest on the LOC balance (of $2916) will be $204. This is paid for with cash. So you are borrowing money to pay interest, and then paying the interest on this money.

This is one way.

Another way is to simply borrow money from the LOC to pay the interest and to let it capitalise.

There are plenty of businesses that operate this way – on borrowed funds. Running a property portfolio is a business.

If you are using a company or trust it should be easier to do.

BUT I am not an accountant, so please don’t try this at home unless your accountant is happy to proceed.

ps. Any accountants out there willing to comment?

pss. I am not doing this, as my home is paid off, but wish I had found out about it sooner.

Terryw
Discover Home Loans
Mortgage Broker
North Sydney
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Rob,

yes i do like LOCs. This was mainly because I used to put all clients to ANZ who do not charge any extra. (but I am getting sick and tired of ANZ lately). Using a term loan instead of a LOC would work fine.

Terryw
Discover Home Loans
Mortgage Broker
North Sydney
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The Hart’s case only referred to a specific situation. There are still many people in property and business who capitalise interest legally. If you do this, your tax deductions rise, while you non deductible debts decrease faster, saving money.

My example with the rates was referring to rates on an investment property. Of course, if their loan had a redraw facility they could pay the rates from their home loan with the interest being deductible. It would be ideal if the redraw was free and they had a split loan to keep the accounts separate for tax purposes.

Terryw
Discover Home Loans
Mortgage Broker
North Sydney
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In Sydney, the ideal time to sell would have been about 12 months ago. Valuations are comming in low these days, eg $600,000 last year, $500,000 now. It seems to be pretty flat now, but should pick up again. Just wait for the pickup to occur.

Now is probably the ideal time to buy.

Terryw
Discover Home Loans
Mortgage Broker
North Sydney
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According to the Tax Payer’s guide (published every year), there is no need to claim rent received from flatmates etc as it is not taxable income. A friend also told me the ATO also said the same thing to her.

But you could declare the income and then claim a perscentage of the costs. If it was a two bedroom place, and one room was rented out, I would suggest you could claim half of everything.

But beware. This could make you lose the CGT exemption. So saving a few hundered dollars now, could cost you thousands later on.

Terryw
Discover Home Loans
Mortgage Broker
North Sydney
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Say your mum had a $500,000 LOC. She could lend you $20,000 for the deposit on a $100,000 property, and maybe another $4000 for costs.

You could then get your own loan of $80,000 for the remainder.

Hopefully in a short period, the property would increase in value to say $130,000 and you could then increase your loan to 80% of this or 104,000. This would be $24,000 extra which you could use to repay good old mum

Terryw
Discover Home Loans
Mortgage Broker
North Sydney
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Rob

Capitalising interest can help you pay off a home loan faster! Despite what you may think, if done properly interest is claimable.

There may also be times when people have no choice but to skip a payment, so it can come in handy.

And what about this scenario:
A person has a home loan with an offset and a LOC securred against the home loan. They want to pay rates of $1000. They could get the money from their offset account, but the interest would go up on their home loan. If they took the money from the LOC, they could claim the interest on this portion and their home loan would still have the lower interest from keeping their money in their offset account.

Terryw
Discover Home Loans
Mortgage Broker
North Sydney
[email protected]

Please speak to an accountant before you sign. once you sign it may be too late to change.

I would suggest a company be out of the question, and you should look at a discretionary trust or a hybrid trust if you need to negative gear.

Terryw
Discover Home Loans
Mortgage Broker
North Sydney
[email protected]