I’m a newbie investor trying to learn a few things from this forum. So far I’ve read through the topics but tax is still confusing for me. Would be great if anyone can help clear up a few things.Me and my wife have 3 properties. Our PPOR owned outright (in my wife’s name) which we recently got a loan for but have not withdrawn. 1 commercial property (family trust, where our company is beneficiary) with loan balance 780K which is cashflow +ve 60K/year. 1 IP residential (in our joint name) with loan balance 600K +ve cash of 3K/year. My questions are.
1. If I borrow against PPOR to pay part of loan on my commercial property, is the bank interest charged on PPOR a tax deductible? I am considering doing this as interest rate is lower on PPOR.
2. In the case of the IP being very low cash +ve, how can we deduct the depreciation value on it? Will we be able to deduct the depreciation from any income distributed by Company from the commercial property. We are currently living overseas so we cannot negative gear our income.
3. Bearing in mind that we found this forum too late and have structured everything this way, is there any advise on what I should do for my next IP?
Any insight and help would be appreciated.TerrywParticipant@terrywJoin Date: 2001Post Count: 16,213
1. Not to you. It could be deductible to the trust if you are on lending. If you are just paying the trust’s loan it won’t be deductible at all.
2. No. You dont own the property so cannot claim depreciation. The trust could claim depreciation.
If you are living overseas who is the trustee of the trust? If a company is there a resident director? If no company and you are trustee you may have a foreign trust for tax purposes. Better get some advice on this as foreign trusts are taxed differently and you could be breaching the corporations act
3.Think carefully about structuring the ownership and structuring the loans, well before entering a contract.
Thanks Terry for the reply.
The company that we set up has two resident directors.
What differentiates between paying the loan and lending money from our personal joint account to the trust?
Do we need some sort of legal documents prior to transferring the money?
The depreciation I am referring is on the Residential IP which is under me and my wife’s name. Can I claim this depreciation against the Income distribution that we get on the commercial property which we bought under trust?TerrywParticipant@terrywJoin Date: 2001Post Count: 16,213
intention. A mere transfer is not a loan. You need to carefully document whether the transfer is a loan or a gift etc. Loan agreements can be oral, but for tax reasons they should be in writing – and other reasons too.
You can claim depreciation against the income that is generated from the asset. If this results in a loss it can be used to offset other income, including trust income that you receive personally.