All Topics / Finance / Making my PPOR my investment property and my investment property my PPOR- tax & structuring

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  • Profile photo of PeanutPeanut
    Member
    @peanut
    Join Date: 2013
    Post Count: 4

    Hi All,

    I am planning on buying an investment property which I will move into in 3 years time. I am keen to get your feedback on how to structure.

    My PPOR is unencumbered and I plan to live there for the next 3 years. I will buy an investment property which I plan to borrow on interest only terms to claim tax benefits of the interest deductions. My unencumbered PPOR can support borrowings for the investment property. 

    My question is, how should I structure my borrowings to preserve the tax deductibility of the investment property loan when I move into the investment property changing it to my PPOR and at the same time turning my current PPOR into an investment property? 

    Profile photo of CatalystCatalyst
    Participant
    @catalyst
    Join Date: 2008
    Post Count: 1,404

    You can't legally deduct the amount you borrowed for the IP once you move into it. .

    The money you borrow for the investment property will be tax deductable while it is rented out. When you live in it it is not tax deductable.

    As you have no loan on your PPOR you have nothing to deduct on that either.  You need to look at the prupoase of the loan and what you spent the money on, that tells you whether it's deductable or not.

    You could borrow against your PPOR then claim that when you move out but it's not legal (people do do it though).

    That is why people advocate to NO pay down your PPOR if there is a chance you will rent it out. Best to put excess money into an offset account then just withdraw it when you need it.

    Profile photo of PeanutPeanut
    Member
    @peanut
    Join Date: 2013
    Post Count: 4

    Thanks Catalyst, it doesn't seem fair that I have fully paid for my PPOR which is the same value as the IP I want to buy. But when I move into the IP, I inherit all the non-deductible debt which hasn't been repaid.   The tax office is having a nice win there?

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    What state is the current PPOR in? In one name or 2 names? Spouses?

    You would probably want to borrow 105% of the purchase price of the new investment property, IO with an offset. Don't pay antying off the principal initially. Just savings and rents into the offset.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://Terryw.com.au/

    Profile photo of PeanutPeanut
    Member
    @peanut
    Join Date: 2013
    Post Count: 4

    Hi Terry, I am in Victoria. My PPOR is held in both mine and wife's names.

    If I borrow 105% on the new investment property and I do not reduce the loan. What happens when I move into it?

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    In vic it is possible for one spouse to sell to the other at full market value. So the other spouse could borrow to buy half the property. This would release cash which could be used to pay for the new PPOR.

    Best to get an IO loan with 100% offset and store money in there. It will save you the same amount of interest as if paid into the loan and also will enable interest to be claimed should you choose to move out in years to come and then rent it.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://Terryw.com.au/

    Profile photo of PLCPLC
    Participant
    @plc
    Join Date: 2012
    Post Count: 400

    As Terry mentioned in Vic spouses can buy property from each other and at no stamp duty. So to expand on his suggestion a strategy could be to borrow 20% plus cost against your current PPOR and the 80% against the investment (no cross-collaterisation). IO with offset. All deductible.

    Then in a few years when you move into the investment, one of you sells their half of the current PPOR (now turned investment) to the other and takes out a loan for 50% of the value. These funds released can be used to pay down the loan of the investment property that is now your PPOR, and the 50% you have borrowed becomes deductible.

    Cheers

    Tom

    PLC | Phoenix Loan Consulting
    Email Me | Phone Me

    Melbourne based Mortgage Broker | Making Finance Simple

    Profile photo of Anthony KAnthony K
    Participant
    @anthony-k
    Join Date: 2010
    Post Count: 56

    Hi Peanut/Catalyst and All

    Do not listen to the ATO BS

    The last case on this was in 1987 which the ATO LOST !!!!!

    Go read Janmor Nominees – this case is still THE LAW.

    FEDERAL COURT OF AUSTRALIA

    Re: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

    And: JANMOR NOMINEES PTY. LTD. (AS TRUSTEE OF THE J. REDMAN FAMILY TRUST)

    Nos. VG386 and VG387 of 1986

    There are also some ATO Rulings which are helpful.

    If you cant find the case email me and I will send you a PDF copy.

    Anthony

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213
    Anthony K wrote:
    Hi Peanut/Catalyst and All

    Do not listen to the ATO BS

    The last case on this was in 1987 which the ATO LOST !!!!!

    Go read Janmor Nominees – this case is still THE LAW.

    FEDERAL COURT OF AUSTRALIA

    Re: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

    And: JANMOR NOMINEES PTY. LTD. (AS TRUSTEE OF THE J. REDMAN FAMILY TRUST)

    Nos. VG386 and VG387 of 1986

    There are also some ATO Rulings which are helpful.

    If you cant find the case email me and I will send you a PDF copy.

    Anthony

    From memory Janmor involved living in a home that was owned by a trustee of a trust.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://Terryw.com.au/

    Profile photo of s0805s0805
    Participant
    @s0805
    Join Date: 2006
    Post Count: 85
    Terryw wrote:
    In vic it is possible for one spouse to sell to the other at full market value. So the other spouse could borrow to buy half the property. This would release cash which could be used to pay for the new PPOR.

    Hi Terry,

    In VIC, does it only applied if both spouses name are on title initially, how about if only one spouse name on title for few years and then one spouse decides to see full 100% ownership to another spouse…..In that case stamp duty and CGT gets applied?

    cheers

    S0808

    Profile photo of PeanutPeanut
    Member
    @peanut
    Join Date: 2013
    Post Count: 4

    Hi All, thanks for your responses. I haven't read Janmor Nominees yet. I will do so this weekend. What about expanding on Terry's idea and what about I sell my half of PPOR to my wife now (gift it). Then when we move into the investment property in three years, she can sell 100% of the property back to me, I borrow 80%, then wife uses the funds to payout the investment property loan. (I still need to read the case, maybe I don't have to do this).

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213
    s0805 wrote:
    Terryw wrote:
    In vic it is possible for one spouse to sell to the other at full market value. So the other spouse could borrow to buy half the property. This would release cash which could be used to pay for the new PPOR.

    Hi Terry,

    In VIC, does it only applied if both spouses name are on title initially, how about if only one spouse name on title for few years and then one spouse decides to see full 100% ownership to another spouse…..In that case stamp duty and CGT gets applied?

    cheers

    S0808

    Any transfer between spouses

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://Terryw.com.au/

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213
    Peanut wrote:
    Hi All, thanks for your responses. I haven't read Janmor Nominees yet. I will do so this weekend.
    What about expanding on Terry's idea and what about I sell my half of PPOR to my wife now (gift it). Then when we move into the investment property in three years, she can sell 100% of the property back to me, I borrow 80%, then wife uses the funds to payout the investment property loan. (I still need to read the case, maybe I don't have to do this).

    YOu have to seek legal advice before implementing this as sounds like domonant purpose is a tax advantage

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://Terryw.com.au/

Viewing 13 posts - 1 through 13 (of 13 total)

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