Hi all,
I would like some advice regarding my current situation.
I am living in a comfortable home for the last 5 years and almost close to paying off the rest of my mortgage in next 3 years (if according to plan).
Just like all parents that I would like to move to the school zone for my children for better education. I am considering to rent out my current home and treat it as an IP while purchasing another house in the new area.
Would anyone provide me the best strategy because I was told that the TAX office would give me a hugh tax bill when I change my PPOR.
Any advice would be appreciated and thanks in advance.
Would anyone provide me the best strategy because I was told that the TAX office would give me a hugh tax bill when I change my PPOR.The only way the ATO could give you a huge tax bill is if your PPOR-turned-IP produced a huge income.
You’ll only incur CGT (AFAIK) from the point in time when the PPOR becomes an IP, should you sell it.
If you rent it out, yes, the rent is taxable, but provided the mortgages on the IP and PPOR are seperate, you’ll be able to claim interest on the loan. It’s a good idea to (assuming you’ve used an offset account) take as much of the money out to purchase your new PPOR, so that you can claim the maximum amount of interest deductions on the remaining balance.
You’ll also be able to claim depreciation of the house assuming the building is not too old (and you’ll need a quantity surveyor to tell you how much you can claim), rates, agent fees, etc.
Of course, I’m no expert, and you should get your account to give you the details… but this is my understanding based on what I’ve been told here.
BAD MOVE..
As i understand it you would have your old PPOR as an IP… with most of the loan paid off ??
– this means “no” or “little” tax benefits to yourself, as the loan is low.Your “new” property that you purchase as a PPOR you would then be paying off with a new loan ? and interest would “not” be deductible here either.
My view would be to sell the old place, use the cash to buy your new place, use the equity created in your new place to purchase an investment property (or two depending on your situation) and if you are looking at + gearing that may be the case !Or re-finance in a creative manner to best suit your individual needs.As you’d be starting ‘fresh’ maybe a trust would be valuable ?
One of the mortgage guys on this forum would be able to assist i’m sure (Motgage Hunter?)
Again- Only my view
REDWING
“The man that thinks at 5o as he did when he was 20 has wasted 30 years of his life”
Redwing is right in the outcome where your debt will be non effective tax wise. Selling and rebuying is a solution.
A cheaper solution (though still pricey) is to “sell” the old PPOR to a trust for max market value with 100% borrowings. You will not pay CGT and your new PPOR assumes the CGT exemption.
You can then have the debt in the IP and the Cash in the PPOR.
If you think this might happen again then borrow 80% of the new PPOR and lodge the cash in an offset where it can be drawn for the third PPOR leaving the debt intact.
As always see an accountant!
Simon Macks
Mortgage Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Thank you all. This is definitely a catch 22 situation. My wife and I just love the current location because it is ever so convinent.
Thanks again. Any more advices are more than welcome.
Mortgage Hunter (or anyone), is there a way that this could be done without actually selling. ie if you were looking to buy a new place and “refinance” the old one with the bulk of the debt and use the equity in the old one on the new PPOR.
I know that this may come down to “purpose of debt” but can you transfer equity like this if you pay CGT or stamp duty or something to legitimise the purpose?
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