hiyall,
i need your advice, has anyone done this?
here goes:we currently own 3 IPs and a PPOR
we owe: PPOR 320k, IPs 475k to seperate banks
the PPOR has 100k of ours in it and 180k of other banks (borrowed to puchase new IPs)my thought is that if i can borrow 40k from the IPs (equity is there)
and use that to pay out my PPOR loan. i could then refinance with the equity in PPOR (480K) and still have access to the same amount i do now.the reason: at the moment the money is just sitting there to save taxable interest on the PPOR. after this excercise i should still be paying the interest but it would be tax deductible.
is this legal/possible or fancy?
has anyone done something similar???
cheerz
still trading my time for money and glad to be here[blink]
Sorry but no !! If you refinance an IP to pay out your PPOR the interest is not tax deductible. Because the purpose of the loan was not for investment.
If you use it to reduce part of the 180k relating to the IP’s, yes it is still deductible. But not the 100k part.
Mal
Getting out of your comfort zone, can help you become comfortable
Yes, we’ve done this three times now.
Target the IP that has the most equity in it. Assume it is in your name only as you might be the highest income earner. Sell it to your partner ( incurring stamps) and use the funds to pay off your PPoR. Your partner simply takes out a loan to purchase the IP. Job done.
Partner has a loan for an IP (tax deductible) and you use the funds to eliminate the PPoR debt. It has worked well for us in the past. Stamp duty payable equated to between 4 and 6 months worth of NTDD on the PPoR, so after this time your strategy sees you in front.
Good luck.
thankyou shwing and dazzling it sound like you are both right i love that.
dazzling – not my name only, we are both self employed, and joint owners. does that bugger it up?
NTDD – ?
in debt and loving it
[biggrin]
Hi Benderfile,
Another option would be to sell the IP’s into a trust, if you operate your businesses through a trust already, this might be a tax effective structure for you.
Regards
Alistair PerryAs has been mentioned it will mean you are required to pay additional Stamp Duty however you may also trigger a CGT problem and if you have owned the property less than a year will mean you may loose the 50% exemption.
By all means transfer the property into Trust as Alistair has mentioned but weigh up the pros and cons first.
Richard Taylor
Residential & Commercial Finance Broker
Ph: 07 3720 1888
[email protected]Richard Taylor | Australia's leading private lender
NTDD -non tax deductible debt.
Thanx APerry, Qlds007 and Wylie,
that makes sense, we dont have a trust set up but i have been planning to do that maybe now is the tiime.
i would imagine that selling the property (with most equity) to the trust would incur SD and probably CGT (wned mor than 1yr). i am ok with that if the numbers stack up.
the other thing is, that property (our 1st) is still considered our PPOR by the OSR as since moving into this one 3 yrs ago (we can consider this our PPOR for 6yrs) we have not changed that.
if that could all work can we sell it to the other partner for below market value (we dont show big earnings so the 35% rule is restrictive)
i dont expect to have it both ways but would like to get rid of the non taxable portion of our debt so i can get more serious about investing.
cheerz
[biggrin]If the ppty is jointly owned, you can sell you half or buy the other person’s half. Possibly a trust is the better way to proceed.
Depending on the size of the capital gains (if they apply), you could also consider selling half to your trust now and half in a different financial year – it may save some tax.
Also be aware that if you claim one of these IPs as your PPOR now, then when you go to sell your current PPOR later, you cannot claim it as being your PPOR for the same period.
Terryw
Discover Home Loans
Parramatta
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thankyou everyone,
much clearer on a direction now,property investing aware solicitor, accountant,
any reccomendations in southern suburbs sydneyso many questions
glad to be here
[blink]
wouldnt be dead for quids
Hi Dazzling
Great option, I’m thinking that rather than sell it to your partner, sell it to the trust though?
How did you go re establishing the Sale price?
did you sell at Market Value? (whatever that is with many REA’s giving quotes of up to $30-40k difference in most cases, worse I heard of was about $100k difference)
guess another bonus is no REA needed ;O)
“Money is a currency, like electricity and it requires momentum to make it Effective”
Count The Currency With This Online Positive Cashflow CalculatorYes Redwing,
The intent of the operation is to extract as much equity from the IP as possible so as to pay off as much of your PPoR NTDD as possible.
Example :
1. PPoR bought for 100K (no debt, in wife’s name only)
2. IP bought for 400K (full debt, in husband’s name only)
3. Roll forward 4 years…..PPoR up to 180K, IP up to 650K
4. Move into IP as PPoR.
5. Former PPoR now becomes an IP
6. Husband buys former PPoR from wife for full 180K, taking out a 190K loan, to include stamps.
7. Wife takes 180K funds and dumps it into the new PPoR debt to reduce NTDD as much as possible. Wife pays CGT if applicable.
8. Roll forward another 4 years.
9. Repeat steps 4 thru 7 for the next step up.
10. (This is the best one)…..finally achieve a decent bit of dirt to settle down in your fully paid off PPoR.Hope that clears it up a little. It worked for us, but if we ever sat down and had a chat with the friendly ATO man, the reason of selling would not be the above, but rather a lifestyle change or something else where the intent wasn’t to avoid paying NTDD.
A round of applause for Dazzling
he’s the winner……(keeping asset out of a trust)
well according to Allens Arthur Robinson, Australia’s leading law firm
because according to their question????? “CGT Treatment of trusts – what is the appropriate investment vehicle now? – December 2000” ……trusts come in second place on your wealth creation strategy
“Had the small business concession not been available, investment in an individual name would have provided the most favourable outcome. An individual would get the discount. A fixed trust will then be the next best option as the discount would be available, even although CGT Event E4 would reduce the benefit of a discount from 50% to 25%. Neither a company nor a non-fixed trust would obtain a discount and both would provide a similar outcome.”but what would they know……their only lawyers after all….
and can you image whats going to happen july1 2006, when the tax rate changes again….
interesting reading….http://www.aar.com.au/pubs/tax/fotdec00.htm
well done dazzling……..you take the gold
unfortunately i’ve got a few used trusts…….good advice 20 years ago…..times have moved on……….anyone interested…going cheap….
hi Dazzling
I read with interest your post and have done a similar thing and use equity from what is now a ppor without debt to fuel investments.
make sure that the system used is very transperant and can be explained but yes it works well in some cases mine being one of them and yours being another.interested who else has used a similar system.here to help
If you want to get involved in some of the projects I’m involved in email to [email protected]thanx all,
i hoped it was possible and thankyou for sharing yo experience.now i have to work out DSRs and see if this can be achieved with our incomes (both self employed)
we will need a cluey accountant, Nicholas Moustacas has been mentioned – all those in favour?
will need a good solicitor is Chris Batten the man?does anyone recommend ‘Destiny Financial solutions’ for property investment planning?
cheerz
[eh]
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