Due to a growing family we have started renovating an ex-rental property (H#1) with a view to moving into (currently own $350K on this) – this house has a much better position and is a larger house.
Once the renovations are complete and we move in, we plan (at this stage) to rent our current home (H#2 – own $58K). We will not be in a position to negatively gear our H#2 once it is rented since the rental income would be almost $24K per annum and the mortgage is relatively small.
Some of the rental income from H#2 can offset the monthly loan re-payments on the H#1. However our tax deductible position would have deteriorated. Does anyone have any advise on how to structure the situation from a perspective of paying less tax? One obvious solution is to sell H#2 and use funds to pay H#1 but it would be a shame to sell the property (my view). Interested in people's opinions.
Yes, you can look at borrowing to pay interest and other investment costs on your old PPOR. This will help you, only slightly though, by freeing up cash which you otherwise would have used so that it can go to the new PPOR loan. Please seek proper advice on this as it is not easy to implement without falling foul of the ATO.
Another option is for one spouse to borrow to buy out the other spouse. This will increase the borrowings and free up cash for the new place.
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
Terryw wrote:Another option is for one spouse to borrow to buy out the other spouse. This will increase the borrowings and free up cash for the new place.
Thanks for the response. We are located in Sydney, so does that mean stamp duty will be applicable for the current PPOR. Title now is 50/50 with the wife.
The current PPOR was originally my wife's investment property 10 years ago. It was transferred into both our names about 3 years ago when we re-financed with another bank. Are there any CGT implications if we do this now?
Also just a general question if bank holds both properties as security would it affect me if had to finance (with the same bank) to "buy" my wife out on the current PPOR that will become a IP?
Yes, i think stamp duty would be payable.
CGT would also be applicable if it was initially an investment property.
Since ownership is changing you will also need to redo the loans. Possible exit fees, though the bank may waive these if you are staying. You should try to avoid cross collateralising properties if you are going to restructure this.
you should also consider the long term aspects. If the property is just in one name then later when you sell this person will get all the capital gains too.
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
Terryw wrote:CGT would also be applicable if it was initially an investment property.
Thanks Terry. Would CGT be payable when we transfer from PPOR to IP as well if we sell the IP sometime down the track?
Unless it was your sole main residence for the whole period, then CGT would apply.
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
Terryw wrote:Yes, you can look at borrowing to pay interest and other investment costs on your old PPOR. This will help you, only slightly though, by freeing up cash which you otherwise would have used so that it can go to the new PPOR loan. Please seek proper advice on this as it is not easy to implement without falling foul of the ATO.Is this what they call "debt recycling"?
yes, i think so
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
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