How to convert PPOR to IP?

[Julie Edwards]

I know this topic has been covered before but I would appreciate any help on this matter.
My husband and I have recently built a house which we have moved into. We put our previous PPOR (in joint names) up for sale 9 months ago and have reduced the price by $150,000 but still can't get an offer.
Our new house has a loan against it which we need to clear.
If we keep the previous PPOR as an IP -

Is there any way to refinance so that legally we can claim interest.
The current loan on the previous PPOR has a LOC with Nil drawn down but my accountant says that I can't draw it down now.

Sell my half to my husband so that he can claim loan interest. He is the principal wage earner.

Sell the house to family trust - don't know anything about them!

Thanks, JED

[geoffw]

Selling will trigger a capital gains taxable event- and selling to a trust, rather than a partner, will also trigger stamp duty. Both of those are expensive.

[Julie Edwards]

geoffw,
The property has been reduced so much that there isn't any capital gain (we've only had the property for 2 years). The value went up but now has gone down.
Also we figured the stamp duty cost would be less than the real estate agents commission.
Are you saying that if you sell to a partner there is no stamp duty payable? We are in NSW.

[geoffw]

I'm not sure Julie. In some states I understand there is a "love and devotion" type of clause. Google has given me a phrase "Where a partner in a heterosexual relationship wants to transfer property into joint names, the transfer is exempt from stamp duty"- although that was stated in relation to gay relationships. It's a possibility worth asking a professional.

[Mry]

I'm not sure Julie. In some states I understand there is a "love and devotion" type of clause.

It has to be a PPOR at the time of the transfer, and normal live in "PPOR" rules apply after the transfer.

In other words you can't use it that clause here.

You can sell to one partner (hopefully the higher income earner) and claim interest on draw down of the LOC for half of the market value of the house at the time of disposal and transfer that into your new loan. The CG implications should be discussed with your accountant but it shouldn't be much since the house (I assume it was a PPOR the entire time) is only 3 months out of the 6 months CGT free transition period. However non-concessional stamp duty will be a killer.

Best to think about whether you want to sell it or rent it out seriously.

[Julie Edwards]

geoffw,
I rang NSW OSR and they said stamp duty would be payable.

Mry,
Thanks for your reply too.
We would prefer to sell it, cause even if we can claim half the loan interest, it is still seriously negatively geared.
It's just that we can't wait much longer to sell, and wonder if it will ever sell in today's market, so we were looking at all other optons.

[duncan_m]

geoffw,
I rang NSW OSR and they said stamp duty would be payable.


Perhaps you need to ask your question in a different way? what did you ask them?

[Julie Edwards]

Duncan,
I said
"my husband and I own a property in joint names. If I sell my half to him do we have to pay stamp duty?"
He said "yes".
I didn't say it was our PPOR cause until we make a decision, we can make either property our PPOR, but once we rent the previous PPOR it will be an IP.
Also Mry said we have to live in the PPOR after the "sale" to get the stamp duty exemption.

[Mry]

I didn't say it was our PPOR cause until we make a decision, we can make either property our PPOR, but once we rent the previous PPOR it will be an IP.

It doesn't quite work that way. Sorry guys, but I shall use my favorite analogy of all time - A PPOR exemption is like a single umbrella. You can only have it over one house at a time except when you have a PPOR that you move out of and move into another one, you can have a six month overlap period where both properties are considered to be a PPOR.

More information on the 6 month rule? Here you are -
http://law.ato.gov.au/atolaw/view.htm?find=(%22residence%22)%20AND%20(%221999%2F43%22)&docid=TXD/TD199943/NAT/ATO/00001

In other words, the other IP, rented or not, attracts CGT from month 7 onwards and cannot be considered to be a PPOR.

[Julie Edwards]

Mry,
Sorry, I did know about the 6 month rule but what I thought was that during that 6 month period you could claim either property as your PPOR (as long as they weren't rented, which they're not). ie. I didn't want to rent until we had decided which was the PPOR for that period.
Regards,