Converting non deductible debt into deductible

Not being a tax professional at I will add my experience in reading tax law for my own uses…

This sounds like a strategy you would want some serious pro help on to check it’s legality. What you are essentially doing in this situation is borrowing against the equity in an IP to pay down your PPOR and claim tax deductions.

The old trick was to refinance your PPOR to a split loan to buy an IP and claim all the interest on the IP side of the loan thus effectively turning your PPOR loan into an investment loan. Well the tax office isn’t quite as thick as we’d like it to be The fact that you sell your IP (or part of it) to your partner / spouse doesn’t go unnoticed as you are effectively still in control of the property and all you’re trying to do is claim your PPOR loan as a tax deduction.

Of course, since gay marriage is not recognised would this mean that gay couples gain the advantage that, though they are as “together” as a married couple, they are not considered so under law? Could they therefore take advantage of this failure to recognise partnership to shuffle debt to a more tax favourable situation?

hmmm. Might that be a way to introduce change? Hit them in the hip pocket [biggrin]

Hugo

by selling to your own discretionary trust you will enable the loan to be increased and the proceeds to be used at your pleasure!!. in effect it is like selling to a different person/entity. The new entitly (may still be yourself as trustee) obtains a loan to buy at market value. The trust uses this money to buy the property, and the proceeds of the sale go to paying out existing loans and the left over to your bank account. This money can then be used to pay down your new home loan, and the trust can claim the full interest on the loan (but only against other trust income).

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

The trust has made a loss, not you. If you give the short fall to the trust, it is a gift and you cannot claim that, or interest on money borrowed to gift.

Your trust would need other income to offset this loss, or to carry it forward.

If you were using a hybrid trust, there may be ways around this.

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

Hugo

There won’t be $13,000 cause the trust will have to pay the $20,000 in interest, so there would be a $7,000 loss.

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

Hugo

If after all expenses your trust had $13,000 profit, this would need to be distributed to beneficiaries who would then add this to their other income and pay tax at the normal rates. If you had two adult children who were not working, then you could probably distribute $6000 to each and they would pay no tax. You could then distribute the remaining $1000 to yourself (you may have to pay 48% tax depending on your income) or you could distrbiute to your company and the company would pay 30% tax, or you could distribute to your uncle’s cousin’s mother’s brother’s adopted grandchildren etc etc

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

Terry,

But then wouldn’t the uncle’s cousin’s mother’s brother’s adopted grandchildren be up for 66% children’s tax ???? LOL [biggrin]

Cheers,

Dazzling

“No point having a cake if you can’t eat it.”