implications; fhog

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From: Martin Vandenberg


My fiance and I are in the process of purchasing a house and land package in SA. Our plan is to use the FHOG to help with the deposit.
I then intend to go to Darwin, looking for work which I'm unable to find here in Adelaide, with her staying here for some time, living in the house, with the intentions of having some friends board with her to help pay off the mortgage in this time.
After some time, most likely 6 months to a year or more, she will probably join me up north while we rent out the property.

Firstly, I was wondering if this scenario would be possible (legal) in regard to the FHOG.??

Once this property is rented out, we plan to negatively gear it as the rent is not expected to cover the mortgage, thereby giving us, or my fiance, some tax benefits. So secondly then, is it possible claim the interest payments on tax after using it as our/her own residence?? (Someone at her work said that this couldn't be done, but I thought I'd read somewhere on the forum that it was ok).

Thirdly, as my fiance is the higher salary earner, 40k as opposed to 25k (which may not exist while I'm looking for work up north), how is it best to structure the loan (ie whose name, I'm guessing hers would be better), both names, or just hers. (Does this have to be in the ownership papers, or the mortgage papers, as these require both our names).

I appreciate any time taken to respond to this. I hope I've made myself clear, as I'm new to buying/investing in property.

If possible, where answering, (and no disrespect intended here), please qualify the response as say being first hand experience, or say being told by a professional.

Sincerely,

Martin Vandenberg
 
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Sim

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Reply: 1
From: Sim' Hampel


I am not qualified to give any professional advice on legal or accounting matters in any way, shape, or colour.

On 1/6/02 3:28:00 PM, Martin Vandenberg wrote:
>Firstly, I was wondering if
>this scenario would be
>possible (legal) in regard to
>the FHOG.??

For starters, most of the information you need is at http://www.firsthome.gov.au/

"An eligible home must be intended to be a principal place of residence and occupied within a reasonable period".

Since it will be your principal place of residence, and will be so immediately, it seems to me that you satisfy this criteria quite well. It would pay to check with your local authority on this matter.

>is it possible claim the
>interest payments on tax after
>using it as our/her own
>residence?? (Someone at her
>work said that this couldn't
>be done, but I thought I'd
>read somewhere on the forum
>that it was ok).

This is exactly the situation I have been in myself. Once the property becomes income generating (and hence taxable), you are able to claim all allowable costs (including interest) from that date. This must be apportioned in the first year for the amount of the year that it was rented out.

If some of the borrowed funds have been used for other private purposes, then the interest on that portion will not be able to be claimed as a deduction.

The ATO website has much more information:
http://www.ato.gov.au/content/Individuals/9033.htm

or

http://www.ato.gov.au/content/individuals/downloads/RentalProperties2001.pdf

Please seek further advice from a suitably qualified accountant or tax specialist.

>Thirdly, as my fiance is the
>higher salary earner, 40k as
>opposed to 25k (which may not
>exist while I'm looking for
>work up north), how is it best
>to structure the loan (ie
>whose name, I'm guessing hers
>would be better), both names,
>or just hers. (Does this have
>to be in the ownership papers,
>or the mortgage papers, as
>these require both our names).

In general, the lending institution will insist that both of your names appear on the mortgage documents - that way they can chase either/both of you if the loan is in default. Note that this has nothing to do with whose name appears on title.

The taxation issues relate purely to ownership according to title and NOT to the mortgage documents. So if you are joint owners, or "joint tenants", then you will split the income and expenses 50% each.

If you wish to have some uneven split to take advantage of differing tax brackets then you must become "Tenants in Common" on title, and you specify the percentage of legal interest you each have. Say if you had 25% legal ownership and your fiance 75%, then you would declare 25% of the income/deductions and your fiance 75%.

Note that you CANNOT change this once it is set without changing the title, which would most likely incur stamp duty charges and such.

You really need to think about the long term implication of your choice. If you intend to hold the property for a long period, then can you always assume that your fiance will be in a higher tax bracket ? What if you decide to start a family and she stops work for a period ? Speak to an accountant and do the sums - you may work out that any short term gain you achieve by skewing the ownership percentages will be lost over the long term when your situation changes. Of course, a working crystal ball is required to be completely effective... sorry, mine is out of commission at the moment.

There are some good examples of ownweship of property at:

http://www.ato.gov.au/content/Individuals/9033.htm

An accountant is definately required to get the most correct advice in these matters, and a mortgage broker will be able to explain what the banks will want and how the finance will work.

Hope this helps.

 
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Reply: 2
From: Steve Piggott


Yes you can purchase with FHOG!
You must live in the premises for 13 weeks of the first year and then you may rent it out! Ownership with the FHOG is joint tenants or tenants in common. There are no provisions for the FHOG for corporate structures although i am currently researching trust beneficiary's being able to gift property to a trust. If this turns out to be legal... then the benefits of a trust can be realised via the beneficiary.

for validation.. i am a developer/property investor, but please verify what i have said with the FHOG.

Happy Investing Neb :)
 
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Reply: 2.1
From: Martin Vandenberg


Thanks Sim and Neb, you've both been very helpful. I appreciate your help. No doubt I'll be asking more questions as time goes on, and it's great that people like you are willing to share your thoughts and experiences with less experienced people like myself.

Regards,

Martin
 
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Reply: 3
From: Adrian See


To Steve Piggott

I read your reply re using the fhog for a ppor and then being able to rent the place out as an investment property after only 13 weeks of living there. Can I ask where you got the figure of 13 weeks? I have not yet come across a period of time to occupy the place until now. If this is true then I will be very happy.

Regards

Adrian See
 
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