Buying ppor for child

[strongy1986]

Was asked for some advice about parents getting a home loan for a child and then the child paying it back all expenses to parents

Plan was to transfer into child's name down the track

I pointed out that this would be a messy situation with cgt involved

What's the easiest way to make something like this happen

I was thinking the parents could get an equity loan , on loan funds to child who purchases in their name
But then the parents would be paying tax on the loan interest and have no desuctions....

 

[Nemo30]

My mum and I did something similar - I was an adult at the time, however didnt have the income or deposit to buy myself.

My mum bought the house in her name - I lived there and paid everything -rates, land tax, mortgage etc

12 months later I bought it off her for original purchase price plus any costs she incurred, as per our original agreement.

I paid stamp duty twice and also the CGT my mum incurred.

The house went up in value considerably during those 12 months - the bank took the increased value into consideration as I still didnt have a deposit.

I came out infront about $80k. It did cause a rift in my relationship with my mum though.

 

[coastymike]

Have many asian clients who do this. Look into discretionary trusts as a lot of those issues you discussed can be mitigated.

 

[Rob G.]

Sounds like CGT event B1 occurring at the same time as acquisition so roughly no CGT resulting. Not that messy if done correctly.

However, a dependent child will not get the main residence exemption unless the parents nominate that dwelling as their main residence (and parents losing their dwelling exemption). Therefore there may be CGT for the child on some portion when they eventually sell.

Depending upon which state, investigate whether the transfer to the child may occur for nominal duty as a gift of natural love and affection. Duties are not an area that I ever look at. Not sure whether a minor gets a land tax threshold either.

Alternatively, for asset protection and flexibility reasons you could investigate acquiring the property in a discretionary trust as per Mike's suggestion. Again no main residence exemption (unless the child is disabled) but other advantages may outweigh.

Many ways to approach this one.

 

[Terry_w]

Was asked for some advice about parents getting a home loan for a child and then the child paying it back all expenses to parents

Plan was to transfer into child's name down the track

I pointed out that this would be a messy situation with cgt involved

What's the easiest way to make something like this happen

I was thinking the parents could get an equity loan , on loan funds to child who purchases in their name
But then the parents would be paying tax on the loan interest and have no desuctions....

Strongy - minor child or adult?

 

[D_One]

But if you go the discretionary truest option, unless the child is making enough money to service the loan, you would still have to remain guarantor even after passing control of the trust to the child.

 

[Rob G.]

But if you go the discretionary truest option, unless the child is making enough money to service the loan, you would still have to remain guarantor even after passing control of the trust to the child.

Yes but the home does not pass to the child's first boyfriend/girlfriend/drug dealer !

 

[coastymike]

You would change the loan at the time you wanted to change control and remove yourself as guarantor at that time. Dont see an issue.

 

[strongy1986]

Strongy - minor child or adult?

Sorry terry

Adult! Married with two kids

The issue is self employment, they can easily service a loan but they can't get a loan

I dint think they want to live in said house forever either

 

[Terry_w]

Easiest way would be for the parent to go on title in a small percentage - say 1%. This way both chld and parent could go on the loans. Later a transfer from the parent to the child - stamp duty and CGT would apply but be minimal.

Another option is for a bare trust. Parent to buy as trustee for the child. Later title could be transferred from trustee to beneficiary without CGT and without stamp duty - or $50 or so. However the loan for this may be tricky.

 

[Brady]

Sorry terry

Adult! Married with two kids

The issue is self employment, they can easily service a loan but they can't get a loan

I dint think they want to live in said house forever either

Then maybe they should look to declare actual income? If they can service the debt means they're earning the money. If new to self employed then can be done on 6months BAS if in same industry, or new to industry 1 year tax return (for both application would have to be strong/LVR)

 

[strongy1986]

Easiest way would be for the parent to go on title in a small percentage - say 1%. This way both chld and parent could go on the loans. Later a transfer from the parent to the child - stamp duty and CGT would apply but be minimal.

Another option is for a bare trust. Parent to buy as trustee for the child. Later title could be transferred from trustee to beneficiary without CGT and without stamp duty - or $50 or so. However the loan for this may be tricky.

Ok so this is more finance related but say they all go on the title and as you suggested parents 1%
Does this mean that the couple would have to prove they had genuine savings (they don't) for their % of the deposit?

The parents don't have the deposit money either but their ppor is worth a bundle so the funds would come in the form of a loc?

So could they just pay cash for the entire property(funded from parents loc) and still be on the title ?(without the couple going through loan applications)

 

[Terry_w]

Ok so this is more finance related but say they all go on the title and as you suggested parents 1%
1. Does this mean that the couple would have to prove they had genuine savings (they don't) for their % of the deposit?

2. The parents don't have the deposit money either but their ppor is worth a bundle so the funds would come in the form of a loc?

3. So could they just pay cash for the entire property(funded from parents loc) and still be on the title ?(without the couple going through loan applications)

1. Depends on the lender, the loan amount etc. Probably not.

2. could come from a LOC on the parents property - but would depend on the situation. could also be cross collateralised - no suggesting it should.

3. Yes, if the parents had a LOC.Maybe no need for them on title if this is the case.

just make sure they each get legal advice on the above.

 

[strongy1986]

Thanks for the replies everyone