FHOG vs tax-deductible interest?

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From: James Johnson


Hey everyone, I've only found this forum recently but I've read a lot of the archived posts and gained some fantastic ideas. There are a lot of selfless people here sharing what they so obviously enjoy.
My Q for those more experienced than myself (ie everyone), is to do with the FHOG. Some of the posts I have seen have been about how interest paid on a former home (now being rented out) is non tax deductible because the loan isn't an investment loan. However, to qualify for the FHOG you need to live in the property you're buying (or at least have 'the intention' to) which would presumably mean a non-investment loan and therefore non tax deductible interest payments. Is my reasoning faulty, or the world? Thanks in advance for any help on this matter.
Cheers Jimmy
 
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Reply: 1
From: Ian Parham


Hello James & All

I know first hand a relative of mine has just purchased an IP complete with tenants securely in place.

The acquisition took place utilising the FHOG. The tenants lease will expire in 11 months time; this is perfect as it allows my relo time to get some furniture together ready to move in.

More importantly, the FHOG is not compromised. It is intended to claim all possible expenses and depreciation incurred during the next 11 months before the status of the property reverts to principal place of residence.

My relo has spoken at length with the accountant, who is also handling all his company business dealing. The feedback suggests that all is ok and above board. Main thing is that the relo moves in within 12 months of settlement.

Hope this helps. Dale, or anyone else who may confirm, or correct, my info please respond.

Cheers Ian
 
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Reply: 1.1
From: Matthew Campbell


>>The acquisition took place utilising the FHOG. The tenants lease will
expire in 11 months time; this is perfect as it allows my relo time to get
some furniture together ready to move in.

Did the tenants "come with the home"? Meaning were they already tenants to
the previous owner and had a 12 month lease? OR s/he has found the tenants
after signing the contract/settling?

>>More importantly, the FHOG is not compromised. It is intended to claim all
possible expenses and depreciation incurred during the next 11 months before
the status of the property reverts to principal place of residence.

Do you know how the FHOG is taken into account? Eg: If the Property would
be -ve geared without the FHOG , is the FHOG considered to be "income" from
the property or is it classified seperately?? this may seem a stupid
question

>>My relo has spoken at length with the accountant, who is also handling all
his company business dealing. The feedback suggests that all is ok and above
board. Main thing is that the relo moves in within 12 months of settlement.

It seems like your relo is going to live there within 12 months and stay a
while.. but if he really didnt want to live there, how long does he
"officially" have to live there for??

I'd love to hear some answers on this one..... (and then maybe go and get
one of those $50k for $150pw) places :)

Regards

Matthew
 
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Reply: 1.1.1
From: Sergey Golovin


James,
To answer on first question -

If you or anyone want to buy property-using FHOG and live there, loan has to be Residential (otherwise loan and your place classified as investment) and you will not get any grants or deductions.

Now, how to make most out of it -

As Ian mentioned earlier -

Make it rental first (loan probably will be investment loan) and claim as many deductions as you possibly could in that first year. Only trick is you have to move in within 12 months, otherwise you won't get the grant.
This is why they are moving in at the end of 11th months (just to be eligible for the grant).

Matthew,

On the question how long does one have to be there (as owner occupy) and then move out and make investment property out of it -

As someone just mentioned earlier on the forum:
3 month probably would be quiet appropriate. Make sure that all utilities are hooked up (gas, electricity, telephone, etc.) as well as council rate, etc. Make sure you have received at least one of each of bills and paid for it. But then again it would depends on your particular circumstances. What if you have to move out unexpectedly (?) - death of relative (not cat or dog), divorce, marriage, birth of child (you did not know about), change of job, what else is there?
Do not get me wrong, I am not giving you any hints. All I am saying is – if something happened and you have to move on and vacate that place how they are going to stop you?

Also, you will get 100% stamp duty exemptions if property is less then $200K (in NSW metro) or $175 (country).
Plus if your buy new place: $7K(any place regardless if it is new or old)+$7K(new places only)=$14K.

You will get new place for now money down at all (free).

With some co.’s you have to come up with initial deposit (you will get your money back in the form of the grant, once it’s claimed) and some places will give (incorporate) that grant into deposit on you behalf. You won't see any of that money. All you have to do is just sign the papers and wait.

Check FAQ site Of State Revenue Office -

http://www.revenue.act.gov.au/FHOG/faqs.html

I personally found it very comprehensive, but it does not mean anything. Some people do not like FAQ sites.

Good luck. Let us know how did you go.

Serge.
 
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Reply: 1.1.1.1
From: Ten of Diamonds


I bought an investment property earlier this year, on a P and I loan (home loan, not investment), and got the FHOG on settlement. My tenants were already in place and their lease has just expired, now they are on month to month.

Until I move into the property (sometime within 12 months of settlement) I am able to treat the property as an investment (in terms of tax). Obviously while I am living in the property I won't be able to claim any tax deductions, but as soon as I move out again it will be back to being treated as an investment property.

As Sergey says, as I see it, the most important thing is the intention to move in. If, once you are there, you have a change in circumstances then the ATO cannot reasonably expect you to stay (has to look like a pretty legit story though, I would guess). I am planning on staying in my place for 2-3 months, and then see what circumstances come up. I am lucky in that my work takes me OS from time to time, so I should be able to make that work for me somehow.

Hope this helps

ToD
 
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Reply: 1.1.1.1.1
From: Ian Parham


Hello Matthew & All

As Sergey and T.O.D. have comprehensively responded to most of your queries, I will just mention that the property was sold with the tenants already in the house (had been there for four years).

Cheers Ian
 
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