2nd Property - Finance structure

My accountant goes AWOL :eek: so I'm calling the experts here.

#1:
PPOR - townhouse under both names, IO loan, 3 accounts (myself, partner, 100% offset joint account). All income/ expenses use the 100% offset.

#2:
Land - paid deposit, settlement March 2011. No mortgage yet.

The plan:
- Build on the land and live there 7+ years
- Polish & rent out #1 (first IP :D)
- Accumulate more IP's

Questions:
- Can I declare #2 as investment, build, then change into PPOR (claim interest while it's being build/ not a PPOR yet)?

- Should #2 be in both names or 1 only (partner plans to stop working after #2 construction's finished)?
- When it's time to move into #2 (PPOR), should we change the loan structure of #1 (eg. change to 1 name only, stop using 100% offset so it's not contaminated with personal stuff)?

Appreciate any replies beforehand ;)
 
The land could be an IP and costs claimed - if that was your intention when purchased. You might have issues with CGT for this period tho.

Since 1 will be an investment you wouldn't want to pay the loan down at all, so good that you have an IO loan.

if 2 is in your name you could claim more initially. Long term you will be living in it so it may not matter too much from a tax pov. You should also consider asset protection, family law issues, estate planning issues too.

You can't just change ownership that easily. You would probably have to pay stamp duty. You wouldn't have to change the loan if ownership stayed as is, but would just move your money from the offset on that house to the offset on the new ppor.
 
Thank you Terry, appreciate your feedback.

The land could be an IP and costs claimed - if that was your intention when purchased. You might have issues with CGT for this period tho.
I plan to buy & hold so CGT should not be a problem (and if it is, hopefully CGT is small-ish compared to the bigger picture).

Since 1 will be an investment you wouldn't want to pay the loan down at all, so good that you have an IO loan.
Phew! Thank's to all those hours reading this forum :D. I believe in using IO at all times for better cashflow.

You should also consider asset protection, family law issues, estate planning issues too
Could you please elaborate? I'm thinking insurance when I read this but believe there's more to it :confused:?

You can't just change ownership that easily. You would probably have to pay stamp duty. You wouldn't have to change the loan if ownership stayed as is, but would just move your money from the offset on that house to the offset on the new ppor.
Thanks - I was told that the cost to transfer ownership between a couple is minimal. Sounds like I've been misinformed.

Off to do spreadsheets to see how much the ATO would give me!
 
Thank you Terry, appreciate your feedback.


I plan to buy & hold so CGT should not be a problem (and if it is, hopefully CGT is small-ish compared to the bigger picture).


Phew! Thank's to all those hours reading this forum :D. I believe in using IO at all times for better cashflow.


Could you please elaborate? I'm thinking insurance when I read this but believe there's more to it :confused:?


Thanks - I was told that the cost to transfer ownership between a couple is minimal. Sounds like I've been misinformed.

Off to do spreadsheets to see how much the ATO would give me!

If your property is in Vic, then you could possible transfer it with only nominal stamp duty, but you would still need to deal with exiting loans and applying again and using a conveyancer to do the transfer etc. It may still be worth doing though.

With the other, you need to consider asset protection. What if one of you goes bankrupt for example. Having the house in 2 names may mean you only lose half of it. Having it in one name may mean you lose it, or depending on who is sued, it may be safe. Having it in one name may also mean that person could mortgage the property without the other person's knowledge (a caveat may prevent this).

Estate planning issues come into it. Depending on how it is set up the death of one of you could leave the other with only half or all of the property depending on their will etc. Wills can also be challenged. All this needs to be considered.
 
#2:
Land - paid deposit, settlement March 2011. No mortgage yet.

The plan:
- Build on the land and live there 7+ years
- Polish & rent out #1 (first IP :D)
- Accumulate more IP's

Questions:
- Can I declare #2 as investment, build, then change into PPOR (claim interest while it's being build/ not a PPOR yet)?

-- When it's time to move into #2 (PPOR) ...

#2 is not intended to be an IP at all times from the start, you have stated such.

To claim interest would incur penalties.

Cheers,

Rob
 
You can only claim deductions for properties that are available for rent. So while you are building a house on that land, even if it is an "investment" you will not be able to claim any of your costs.

Instead all of your costs (including insurance, rates, etc) will be added to the cost of your house and can be used to reduce any potential CGT in the future.
 
You can only claim deductions for properties that are available for rent. So while you are building a house on that land, even if it is an "investment" you will not be able to claim any of your costs.

Instead all of your costs (including insurance, rates, etc) will be added to the cost of your house and can be used to reduce any potential CGT in the future.

Steele v DFC of T 99 ATC 4242; (1999) 197 CLR 459

However, as I said above, this property is not intended to be rented until after 7 years use as a PPOR.

Cheers,

Rob
 
Steele v DFC of T 99 ATC 4242; (1999) 197 CLR 459

However, as I said above, this property is not intended to be rented until after 7 years use as a PPOR.

The 7 years PPOR is only a plan and does not necessarily happen immediately after construction. Is it OK to rent it out for a few years then move in (and claim the IP period)?

Some background: we're happy where we are at the moment (#1) but considering our options - depending on the market we may:
- keep living in #1, rent out #2 or
- move in to #2, rent out #1 or
- rent somewhere and rent out both properties

As part of land transfer, we have a form that asks whether the new purchase is for PPR or IP. There's no tickbox for "we don't know yet" :D then a friend mentioned tax deductibility - hence this thread.
 
You can only claim deductions for properties that are available for rent. So while you are building a house on that land, even if it is an "investment" you will not be able to claim any of your costs.

Instead all of your costs (including insurance, rates, etc) will be added to the cost of your house and can be used to reduce any potential CGT in the future.

Thank you, makes everything clearer now. This is a "loss" if I buy & hold, the CGT savings would never be realised.
 
It may still be worth doing though.
Cheers. By the time this happens, I'd have my accountant back.

With the other, you need to consider asset protection. What if one of you goes bankrupt for example. Having the house in 2 names may mean you only lose half of it. Having it in one name may mean you lose it, or depending on who is sued, it may be safe. Having it in one name may also mean that person could mortgage the property without the other person's knowledge (a caveat may prevent this).

Estate planning issues come into it. Depending on how it is set up the death of one of you could leave the other with only half or all of the property depending on their will etc. Wills can also be challenged. All this needs to be considered.

Good points. What kind of professional deals with these things (lawyer, accountant)? I'm a migrant and only knows that bank financial advisors = plague :mad:
 
Thank you Terry, appreciate your feedback.


I plan to buy & hold so CGT should not be a problem (and if it is, hopefully CGT is small-ish compared to the bigger picture).


Phew! Thank's to all those hours reading this forum :D. I believe in using IO at all times for better cashflow.


Could you please elaborate? I'm thinking insurance when I read this but believe there's more to it :confused:?


Thanks - I was told that the cost to transfer ownership between a couple is minimal. Sounds like I've been misinformed.

Off to do spreadsheets to see how much the ATO would give me!

You can only claim deductions for properties that are available for rent. So while you are building a house on that land, even if it is an "investment" you will not be able to claim any of your costs.

Instead all of your costs (including insurance, rates, etc) will be added to the cost of your house and can be used to reduce any potential CGT in the future.

This is not correct.

See the case of Steele which Rob referred to ( Steele v. FC of T 99 ATC 4242; (1999) 41 ATR 139) and to
TR 2004/4
http://law.ato.gov.au/atolaw/view.htm?locid='TXR/TR20044/NAT/ATO'&PiT=99991231235958
 
Thanks for the link Terry - bookmarked (and I now know that all costs are tax-deductible if it's for investment purposes)!
 
Back
Top