Loan options

G

gldsaucer

Hi Guys,

I am trying to work out the best possible options when transferring a property from my Mother-in-Law to me. I have thought of a few options below. Please comments on the options whether its good or bad. Ideally I would like as much liquid cash as possible so that I could utilise it for future use.

The property currently has 200k loan owing. I have the money in cash to pay off the loan if I need to.

Option 1

Apply for homeloan for 200k to pay off the loan owing and apply to increase my loan amount after the property is under my name.

Option 2

Apply homeloan 400k - 200k goes to pay off the loan and 200k goes to mother in law and transfer it back to me. With this option I am not sure whether or not, at settlement, the bank could just hand over the cheque to me.

Option 3

Pay off the loan and obtain a home loan after the property is transferred into my name.
 
Hi

Hi,

There are a few options on doing this... I actually done the same thing this year for me and my mum.

If you need any advice let us know, more then happy to help.
 
Define both 'good' and 'bad' and for whom?

You should probably buy at full market price because of several reasons - 1 being deductibility of interest...

Social Security ramifications for MIL..

Asset protection issues...

CGT issues..
 
Terry_w said:
Define both 'good' and 'bad' and for whom?

You should probably buy at full market price because of several reasons - 1 being deductibility of interest...

Social Security ramifications for MIL..

Asset protection issues...

CGT issues..
Click to expand...

I guess I should say bad in terms of something amiss that I am not aware of with my plan.

Care to explain Asset protection and CGT? The property has never been rented out and it is sold for less than what it was purchased. I guess there is no CGT there? Unless if I missed something?
 
Heya,

I'm not a tax expert, but here's my 2c.

I think the transfer of ownership of the title will cause a CGT event. Basically means you'll pay CGT on any gain made between the market price of the property today and what your mum paid for it.

In terms of the loan, set it up as per normal. Take out a normal resi loan based on the full valuation of the property. So for example, if its valued at 500k and you want 400k of funds, borrow 400k from the lender.

At settlement, when cheques move around, your mums mortgagor will be paid out by your lender, with the remaining funds provided to her.

This way you'll have 400k of deductible debt (assuming its for an investment), your mum has her mortgage cleared and gets cash (she can transfer this back to you as a separate transaction).

Cheers,
Redom
 
The house is owner occupied by my Mother in Law and it will be my PPOR. I thought this would not cause CGT?

Redom said:
Heya,

I'm not a tax expert, but here's my 2c.

I think the transfer of ownership of the title will cause a CGT event. Basically means you'll pay CGT on any gain made between the market price of the property today and what your mum paid for it.

In terms of the loan, set it up as per normal. Take out a normal resi loan based on the full valuation of the property. So for example, if its valued at 500k and you want 400k of funds, borrow 400k from the lender.

At settlement, when cheques move around, your mums mortgagor will be paid out by your lender, with the remaining funds provided to her.

This way you'll have 400k of deductible debt (assuming its for an investment), your mum has her mortgage cleared and gets cash (she can transfer this back to you as a separate transaction).

Cheers,
Redom
Click to expand...
 
gldsaucer said:
I guess I should say bad in terms of something amiss that I am not aware of with my plan.

Care to explain Asset protection and CGT? The property has never been rented out and it is sold for less than what it was purchased. I guess there is no CGT there? Unless if I missed something?
Click to expand...

Under market value transfers - if bankruptcy or family law issues down the track. Unlikely maybe but should be considered. She is a MIL so I assume you have a spouse. Document things carefully.

What if the property becomes a rental at some point in the future.. If no chance you may not have much to worry about.

Will she apply for the pension in the next 5 years?
 
She lives overseas and not an Australian citizen; no pension etc.

Terry_w said:
Under market value transfers - if bankruptcy or family law issues down the track. Unlikely maybe but should be considered. She is a MIL so I assume you have a spouse. Document things carefully.

What if the property becomes a rental at some point in the future.. If no chance you may not have much to worry about.

Will she apply for the pension in the next 5 years?
Click to expand...
 
Thought of Terry as soon as I read this as well.
Also in this scenario from my understanding you would need to pay all closing costs as well. My brother and I are in this scenario and have been advised the only exemption to avoiding this is a spousal transfer.

Call Terry.
 
I am not sure whether or not there is CGT that why I am asking for opinions on what I am planning to do and what would be the better option.
 
Terry's comments are valid and should be addressed.
If as you say, the property at market value is worth less than what it was purchased for, there should be no capital gain. If she is an Australian taxpayer, and this was an investment property, there may be a capital loss able to be used, although you said the house is an owner occupier. Not sure how that works if she lives overseas, did she recently move or perhaps an Australian home when she visits?

If MIF has agreed to sell at a less than market price, make sure it is well documented and all sign off on. You would pay stamp duty on the sale price. Be careful if she is an Australian pensioner as gifting rules will apply if sold for less than market price.

As to a loan, my view is if you are going to sell/buy at less than market value, it may be easier to pay the loan off first, get title back, transfer the property then refinance it once it is in your name based on a valuation done.
If it is sold at market value, then you will pay higher stamp duty, need to find the settlement funds and then get money transferred back from MIL.

Let us know how you go and what you decide upon.
 
This property is her only home in Australia. She is based overseas and will not be returning to Australia. I read the following on ATO website.

"If you do not use it to produce income (for example, you leave it vacant, or use it as a holiday home) you can treat the dwelling as your main residence for an unlimited period after you cease living in it."

https://www.ato.gov.au/General/Capi...ng-as-your-main-residence-after-you-move-out/

Am I interpreting this correctly that MIL is exempt from any CGT? The house was not used to generate any income of any sort and was left vacant for the time when she was not in Australia.

Greg Reid said:
Terry's comments are valid and should be addressed.
If as you say, the property at market value is worth less than what it was purchased for, there should be no capital gain. If she is an Australian taxpayer, and this was an investment property, there may be a capital loss able to be used, although you said the house is an owner occupier. Not sure how that works if she lives overseas, did she recently move or perhaps an Australian home when she visits?
Click to expand...
 
gldsaucer said:
This property is her only home in Australia. She is based overseas and will not be returning to Australia. I read the following on ATO website.

"If you do not use it to produce income (for example, you leave it vacant, or use it as a holiday home) you can treat the dwelling as your main residence for an unlimited period after you cease living in it."

https://www.ato.gov.au/General/Capi...ng-as-your-main-residence-after-you-move-out/

Am I interpreting this correctly that MIL is exempt from any CGT? The house was not used to generate any income of any sort and was left vacant for the time when she was not in Australia.
Click to expand...

ATO only gives part of the story. It all depends on her situation overseas. Does she have another main residence?
 
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