Hi all,
I need some advise since I am such a beginner & so ignorant about taxes & how to get the benefit out of it.
Recently bought a place & claimed my FHOG. I plan to live in it for 6 months & declare it to an IP on the 7th month and move back in with my sister. I wish to set the IP to benefit the -ve gearing & tax deductibles. Questions & advise are welcome as below1. CGT – is it worth declaring it as IP after 6month to qualify for my FHOG or better to stay for longer to get CGT exemption? I don't plan to sell this place at all until needs arises.
2. DECLARATION to IP – How do I declare it as IP after the period?
3. -VE GEARING – Plan to be a landlord that rents out the rooms rather than whole house. What are the items I can use to for deductions? Electricity? Getting solar?
4. LOAN – how does paying "interest only" for the period of PPRO helps any tax benefits etc? Is it advisable or really doesn't make a difference? I have no debt.
5. OTHERS – if there are any other pointers or warnings, please do let me know.
Thank you all for your help. I am glad I found this website.
1. CGT – is it worth declaring it as IP after 6month to qualify for my FHOG or better to stay for longer to get CGT exemption? I don't plan to sell this place at all until needs arises.
If you are living in it CGT exemption as main dwelling PPOR already exists.
The 6 month time period relates to FHOG not CGT exemption you just need to be able to prove with records that you were living there ie Bills Notices
six year rule may be worth looking at if you plan not to live there and rent it out.
http://www.ato.gov.au/individuals/content.asp?doc=/content/36887.htm
2. DECLARATION to IP – How do I declare it as IP after the period?
Done on financial year when you do tax return. if it is not a full year then the expenses are divided by the proportion of what was an expense while it was rented. Keep records of rent collected for financial year and expenses incurred while renting it out.
3. -VE GEARING – Plan to be a landlord that rents out the rooms rather than whole house. What are the items I can use to for deductions? Electricity? Getting solar?
Maybe depreciation on the solar panels, depreciation on hot water system, depreciation of carpets, depreciation of furnishings in rooms. Employ quanity surveyor to work this out.
Expenses – insurance, council rates, water rates, repairs, http://www.ato.gov.au/individuals/content.asp?doc=/content/31258.htm
If you are renting out some of the rooms you have to proportion the expenses based on floor space proportion used for renting out compared with what is not rented out. see bottom half of http://www.ato.gov.au/individuals/content.asp?doc=/content/31258.htm
4. LOAN – how does paying "interest only" for the period of PPRO helps any tax benefits etc? Is it advisable or really doesn't make a difference? I have no debt.
Mostly this is a cash flow decision and whether you want to pay off the debt on the mortgage.
5. OTHERS – if there are any other pointers or warnings, please do let me know.
Landlords insurance – look into this rather than normal insurance. Are you managing it or getting a property manager ?
duckster wrote:4. LOAN – how does paying "interest only" for the period of PPRO helps any tax benefits etc? Is it advisable or really doesn't make a difference? I have no debt.Mostly this is a cash flow decision and whether you want to pay off the debt on the mortgage.
5. OTHERS – if there are any other pointers or warnings, please do let me know.
Landlords insurance – look into this rather than normal insurance. Are you managing it or getting a property manager ?
All good points from duckster.
Just to expand on a couple of things.
4. Loan – Might be an idea to set the loan up as IO with an offset attached. This will give you flexibility in the future.
5. Insurance – if you're self managing, you'll need to ensure that the landlord insurance policy you take out allows self-managing.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Thank u guys indeed this has been a tremendous help for me. Was reading ato’s doc on rental properties tat gave me lots of light but still unfamIliar w the terms. Planning to find an accountant here in melb tat specialises in property. Any ideas?
3 If you are renting out some of the rooms you have to proportion the expenses based on floor space proportion used for renting out compared with what is not rented out. see bottom half of http://www.ato.gov.au/individuals/content.asp?doc=/content/31258.htm
Thank u duckster – If the rooms are proportioned then what abt the use of the living + kitchen? What wld they come under? Common areas? So then wld all utility bills be proportioned as well for deduction purposes?
4. Loan – Might be an idea to set the loan up as IO with an offset attached. This will give you flexibility in the future.
Getting 100 percent offset but still can’t see why IO is beneficial. Isn’t better to pay off as much and as soon?
5. Insurance – if you’re self managing, you’ll need to ensure that the landlord insurance policy you take out allows self-managing.
Thank u jamie n duckster, will be self managing n will look into landlords insurance.
OTHER:
Am planning to share another property w my sis in 2 yrs. Then with new joint ownership property, do both of us need to live there for CGT exemptions? How long do we need to to get tat?FHOG grant – are you allowed to rent a room out while you are living in the ppro under FHOG?
keren_mx5 wrote:Getting 100 percent offset but still can't see why IO is beneficial. Isn't better to pay off as much and as soon?Hi Keren
Yep, it's good to pay it down quickly. You can do this with your offset account. Basically, the money in your offset account will reduce the amount of interest you pay in your loan. If you have a $500k loan and $100k in your offset, your effectively only paying interest on $400k.
If this place is going to be an IP in the future, it's important to structure it right from the start. There is no point paying down the principle on an investment loan (particularly if your planning on having a PPOR in the future). From the example above, when you do convert this into an IP, you can take that $100k from the offset, use it as a deposit on your PPOR and leave the large $500k deductable debt on your IP. Hope that makes sense
Jamie
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
You should not pay PI on an investment while you have personal debt – otherwise you will be throwing away tax.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
And if you ever think you might rent your PPOR out and buy another PPOR you should go Interest only with 100% offset from day 1 irrespective.
There is already a couple of present posts where forum clients are doing just this and have already paid down sizeable chunks of the PPOR loan only to realise they cant redraw the funds and claim them as a deductible expense.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Qlds007 wrote:And if you ever think you might rent your PPOR out and buy another PPOR you should go Interest only with 100% offset from day 1 irrespective.There is already a couple of present posts where forum clients are doing just this and have already paid down sizeable chunks of the PPOR loan only to realise they cant redraw the funds and claim them as a deductible expense.
Cheers
Yours in Finance
Can you direct me to those posts please so I can understand them better? I really have no debt at the moment so just want to pay off as soon. Thank you
Other questions I have too. –>
Am planning to share another property w my sis in 2 yrs. Then with new joint ownership property, do both of us need to live there for CGT exemptions? How long do we need to to get tat?
FHOG grant – are you allowed to rent a room out while you are living in the ppro under FHOG?
Anyone can recommend a tax property accountant that is good? in the city, sth bank is fine?
keren_mx5 wrote:Qlds007 wrote:And if you ever think you might rent your PPOR out and buy another PPOR you should go Interest only with 100% offset from day 1 irrespective.There is already a couple of present posts where forum clients are doing just this and have already paid down sizeable chunks of the PPOR loan only to realise they cant redraw the funds and claim them as a deductible expense.
Cheers
Yours in Finance
Can you direct me to those posts please so I can understand them better? I really have no debt at the moment so just want to pay off as soon. Thank you
Other questions I have too. –>
Am planning to share another property w my sis in 2 yrs. Then with new joint ownership property, do both of us need to live there for CGT exemptions? How long do we need to to get tat?
FHOG grant – are you allowed to rent a room out while you are living in the ppro under FHOG?
Hi all,
Could someone please recommend a good tax property accountant in the city or around south bank that is realible & honest??
Also please someone have a look at my question above. Thank you.
Keren
Which City ?
Which Southbank ?
There are more than 1.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Jamie M wrote:keren_mx5 wrote:Getting 100 percent offset but still can't see why IO is beneficial. Isn't better to pay off as much and as soon?Hi Keren
Yep, it's good to pay it down quickly. You can do this with your offset account. Basically, the money in your offset account will reduce the amount of interest you pay in your loan. If you have a $500k loan and $100k in your offset, your effectively only paying interest on $400k.
If this place is going to be an IP in the future, it's important to structure it right from the start. There is no point paying down the principle on an investment loan (particularly if your planning on having a PPOR in the future). From the example above, when you do convert this into an IP, you can take that $100k from the offset, use it as a deposit on your PPOR and leave the large $500k deductable debt on your IP. Hope that makes sense
Jamie
Cheers
Jamie
Hi all,
I have been enjoying this thread and have taken away some really important info as I am just a ‘newbie’I just have one question
Is it then preferred to convert the PPOR into the IP after the 6 year rule and then begin paying down the $500k deductable debt?I think its the fear of not paying down the loan at some stage even with rental income which is a worry for me.
Thank you to all who provide a wealth of knowledge and inspiration
Generally, you should only pay down investment debt after you have paid off all personal debt. This is because personal debt is not deductible but investment debt is. So if you were to pay PI on an investment loan while you had a home loan then you would be throwing money away by decreasing tax deductions. The extra repayments on the IP would be better spent paying down the home loan.
There is also the issue that some people will move out of their main residence later on and rent it out and then buy a new place to live in. If you were to do this, ie pay down your home loan to a low amount, then you would not have cash availble for the new main residence purchase. The end result could be a high non deductible loan with a low deductible loan which would mean you are paying tax on your rent and non-claimable interest on your new home. The way around this, partially at least, is to use IO with an offset on your main loan. Do not pay it down, but save all money in the offset – which will save you the same interest.
Since you never know what will happen in the future it may be a good idea to do this for your main residence loan now.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Qlds007 wrote:KerenWhich City ?
Which Southbank ?
There are more than 1.
Cheers
Yours in Finance
Sorry mate.. my bad..
I am in melbourne..
duckster wrote:3. -VE GEARING – Plan to be a landlord that rents out the rooms rather than whole house. What are the items I can use to for deductions? Electricity? Getting solar?
Maybe depreciation on the solar panels, depreciation on hot water system, depreciation of carpets, depreciation of furnishings in rooms. Employ quanity surveyor to work this out.
Expenses – insurance, council rates, water rates, repairs, http://www.ato.gov.au/individuals/content.asp?doc=/content/31258.htm
If you are renting out some of the rooms you have to proportion the expenses based on floor space proportion used for renting out compared with what is not rented out. see bottom half of http://www.ato.gov.au/individuals/content.asp?doc=/content/31258.htm
Going back to this comment. How do you apportion the common areas like living room & kitchen & garage?
** I looked at some other forums and they recommended Gatherum & Goss in melbourne for tax accountants. Any comments or other recommendations?
** In 2 years, my sister & I are getting an investment property so joint property. Question is, do both of us need to live there for how long to get CGT exemptions?
Thank you all very much. This forum has been great for me.
Thank you TerryW, makes perfect sense to me now
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