Confused.....and need help

Hi guys,

Another newbie hopelessly lost and needing advised ( :confused: )

Need some advise as to what we are about to do makes sense.

My wife and I own our PPOR outright and own 2 x IP near by.

Currently we owe our lender $400k for the 2 IP's

We have been keen to buy another property a suburb closer to where we want to live as it would assist with many of our day to day activities

My wife and I think the only way to do this is to place one of the IP’s on the market.

If we sell at the price we want (and we believe we will) that means our debt to the bank will only be $40k. We plan to buy in the suburb we want and turn our current PPOR into an IP.

What we don’t understand is what the pitfalls are if we go ahead with this plan.

What other alternatives are there?

Your feedback is greatly appreciated.

Regards

Q
 
Hi quebec,
Welcome.

Hi guys,

Another newbie hopelessly lost and needing advised ( :confused: )

Need some advise as to what we are about to do makes sense.

My wife and I own our PPOR outright and own 2 x IP near by.

Currently we owe our lender $400k for the 2 IP's

We have been keen to buy another property a suburb closer to where we want to live as it would assist with many of our day to day activities

My wife and I think the only way to do this is to place one of the IP’s on the market.
I assume you mean you want to buy another property as your PPOR.

Why do you think you can only do this by selling an IP? Do you have serviceability issues that would prevent you purchasing a new PPOR?

If we sell at the price we want (and we believe we will) that means our debt to the bank will only be $40k. We plan to buy in the suburb we want and turn our current PPOR into an IP.

So you have approx $360k equity in the IP you plan to sell, is that what you mean? Also take into account Capital Gains Tax, agents fees, etc. That could substantially reduce that $360k

If you choose to turn your fully paid PPOR into an IP and then buy a new PPOR, any debt on the new PPOR will not be tax-deductable and the rental income from the ex-PPOR will be fully taxable.

What we don’t understand is what the pitfalls are if we go ahead with this plan.

What other alternatives are there?

Your feedback is greatly appreciated.

Regards

Q

Understand you may not wish to share "the numbers" on a public forum, but without knowing more details about the levels of equity you have, the price of the proposed new PPOR and your serviceability, I would suggest you consider the following:
- Sell your PPOR. This will be almost certainly CGT-exempt
- Keep your existing IPs. Unless they are causing you a financial drain.
- Use the sales proceeds from your PPOR to buy the new PPOR.

This could result in a saving of CGT, retain the tax-deductible debt on the IPs and still minimise new debt on the PPOR.

You may need to speak to an accountant, with "your numbers" to help gauge the impact of CGT and any tax implications of the 2 scenarios.

Hope this helps.
 
Hi Rob,

Thanks for welcoming me into the community.

Appreciate the feedback.

I apologies for the loose sums.

You are correct in assuming that we want to buy another property to be our PPOR.

All the sums I have included have taken into consideration CGT and RE costs.

At the moment we are a single income family and probably will stay that way for a few years to come. We are managing at the moment but feel that if we wait a few more years to buy into the area we want then it might be out of our price range.

Reading other posts on the forum I have realised that paying of our PPOR post haste was not the smartest thing to do but at the same time we were young and didn't realise we were going to get into property investment. Unfortunately the bond (our Achilles heal) we have with our PPOR is very strong and selling it would be out of the question

It sounds like a couple of hours with my accountant is in order.

Regards

Q

PS. If anyone else has useful ideas or questions that I should run past my accountant please let me know.
 
PS. If anyone else has useful ideas or questions that I should run past my accountant please let me know.

It would be good if your accountant had some IPs. I've unfortunately found that unless an accountant has personal experience with property investing, they seem to miss a lot.
 
Welcome quebec,

How much is the new PPOR? (Hope you don't mind the questions.) Do you need to sell the IP to buy the PPOR?

It is hard to advise without numbers. (We are a bunch of number crunching investors here!) :)

Regards JO
 
Hopefully your accountant is more competant than ours was.

We need to take the blame ultimately, as we didn't go over the returns before he sent them off.We thought a chartered accountant knew what he was doing.
We were audited, and going through an objection now.It's been almost 2 years. We also voluntarily asked Mr Taxman to adjust the next year's return, as we found an even larger mistake.He considered a very large renovation as a repair (100K+)
 
Hi josco,

The new PPOR we are looking at is circa $850k.

The school of thought is that if we sell one IP and get our debt down to $40k then we can use rent from existing IP and ex-PPOR along with salary to meet loan repayments. In short if we want to buy in the area I'll need to sell one of IP's.

I guess the hitch we have is that the rent will be fully taxable from the ex-PPOR.

Would it be worth my while to:

1. transfer my half of the PPOR (joint owned) to wife to minimise tax payed on rent? (Wife on leave from job at the moment)

2. start up a self managed Super Fund and somehow sell PPOR to it (Sounds like a lot of hard work)

I appreciate your efforts to help me.

Kathryn D, sorry to hear about your tax issues. I think everyone in general takes there accountants word for what it is. Aren't accountants insured for this kind of thing?


Regards

Q
 
Hi q,

Your SMSf cannot buy your property. This goes against the "ärms length" rule which states that your Superfund cannot buy a property froma related party, nor can it rent to a related party.

Depending on ownership of the PPOR (Joint tenants/tenants in Common) your accountant could draw up a Minute whereby your wife would hold the majority of units in your property and therefore could receive the income.

I am not an accountant though, so highly suggest that you seek advice on this. I do know this is possible however. :)

I understand now why you would like to sell your IP. Can I ask, are you near retirement age?

Regards JO
 
Hopefully your accountant is more competant than ours was.

We need to take the blame ultimately, as we didn't go over the returns before he sent them off.We thought a chartered accountant knew what he was doing.
We were audited, and going through an objection now.It's been almost 2 years. We also voluntarily asked Mr Taxman to adjust the next year's return, as we found an even larger mistake.He considered a very large renovation as a repair (100K+)

Oh my gosh - your husband/partner did not read the Income Tax Assessment Act.
 
Reading other posts on the forum I have realised that paying of our PPOR post haste was not the smartest thing to do but at the same time we were young and didn't realise we were going to get into property investment. Unfortunately the bond (our Achilles heal) we have with our PPOR is very strong and selling it would be out of the question

Sorry to get stuck on this point, but I'd like to understand how you'd have such a strong bond to a property that you don't want to sell it, but you'd rent it out (probably to "total strangers"). And since you own it outright, your gains are CGT-free. None of my business really! :eek:

My suggestion (not advice!) would still be to sell this PPOR and put that into your new PPOR as this is almost certainly the most CGT-effective approach.
 
Another option,
If you really want to keep your current PPOR, it means from a tax perspective you miss out on CGT free status, and then have no income tax debt deductions when it is rented out.
One was round this is to sell your PPOR to your family trust, before renting it out. Frees up CGT free cash for the new purchase, without selling the investment property. There are costs to this, as has been already mentioned, its worth getting specific advice. Usually the nice family home is not the best rental property....
 
Oh my gosh - your husband/partner did not read the Income Tax Assessment Act.

That was the first year of our investing, not our 13th.
That is/was an expensive lesson to learn

Hopefully you will learn from our mistake.
That is why we we think it is so important for you to know the Act.
 
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