Can I move debt off my home onto IP

Hi Folks,

Our home is worth $330,000 and we owe $135,000 on it.

We have 1 IP worth $165,000 and owe $53,000 on it (interest only loan).

We purchased the IP off my mother in law for the reduced amount; essentially we paid out her debt and gave her free rent in the property (she was paying more than half her pension to the bank, a loan she would never pay off).

Foolishly I did not realise that I would have to declare receipt of full market value rent to make claims and deductions on the property as an investment.

So my mother in law gets free rent and I declare rental income I do not actually get - weird stuff.

Now, I saw my accountant and asked him what I could do. He suggested that I could borrow more money on the IP to the value of the property, based on the stamp duty I paid on the market value at purchase.

It went like this - borrow $80,000 and give it to my mother in law and she holds it for a period. If queried by the ATO later, we say that we are just paying the remainder of owed money to my mother in law.

At a later date she gifts us the $80,000 and we reduce our mortgage and refinance the lower amount.

This all sounds pretty underhand and shady to me, I can imagine trying to explain it all in an audit.

We are currently purchasing another two rental properties, both positive cash flow and properly setup (I hope).

Anyone have any ideas about shifting debt in my situation - and is it legal.

Also, how would I tell the bank that "I need an $80,000 loan to reduce my mortgage, but I'll just rest the money in my mother in laws account for a while first".

Hope this is not too rambling, cheers,

Hi peoples,

If you are looking at buying more IP's in the future you can use the equity in the property for deposits which which should help maximise your deductions from that IP. This of course doesnt help if you don't plan to buy for a few years. It also doesnt help with reducing the PPOR mortgage but if the IP's are heavily CF +ve then you can use that money to pay off the mortgage faster.

As for the borrow 80k, put it under the mattress, give back later on idea I'd have to agree it sounds a little bit dodgy. But then lots of things involving money making do so only the individual can decide where that line is drawn.

Aside from having the tax office looking closley at this, if you may your mother an additional $80k, you may be liable for more stamp duty...

A better alternative may be looking at one of the split loans (I think ANZ is doing them). Ask a broker and your accountant about it.
Hi Shaun.

One thing I picked up is the "we" in your post. By that, I assume you mean your wife / partner or whatever.

If the house is in both names, one option you have is to refinance to buy out the partner. If it's your wife, you can typically get a stamp duty exemption for this also (need a stat dec etc)

That way, you can "buy out" your wife, keep the money (who said nanna would really give it back anyway!), and the additional loan is tax deductable.

Of course, you have to figure out how that affects tax returns with the changed ownership (ie wife now has no claims from property).

All the best,