PPOR = IP/ownership, pros and cons

[greener]

My partner and I jointly owe $100k on a $500 property (NO1) which is currently our PPOR. We aim to keep it and turn it into an IP if we can restructure financing/equity (another thread)

We have found a property (NO2) that we wish to move to and have purchased with paperwork to be finalised this week.
As the 2nd is in a rural area we expect that it will have less scope for capital appreciation that NO1.

Financing aside, we intend to keep NO1 as PPOR due to capital appreciation growth and intend to use the 6 year rule in case NO2 does not work as expected and may in year 5, evaluate possibilities to knockdown NO1 and rebuild, sell or continue on as is as IP.

As a company director, I am at risk and so believe that both properties should be in my partners name for asset protection purposes. (She is in top income bracket as well)

We have a discretionary family trust structure (company as trustee) in place that currently holds shares but has no immediate income.

Questions
/1 What are the negatives for keeping NO1 as PPOR when compared with alternative?

/2 What are the pros and cons for keeping NO1 as PPOR until year 5 and then making NO2 the PPOR?

/3 When should we do valuations?

/4 Who should own the NO2? Partner or Trust?

Best Regards,

 

[DaleGG]

Hi

You could also consider a hybrid trust which will allow you to take advantage of negative gearing in the earlier years and still retain flexibility later on.

The disadvantages of using a trust are:

The costs - allow about $2,000 to create the trust, and the on going costs which will vary depending upon what you do but say $1,000 pa including the $200 ASIC fee for the trustee company.

The stamp duty if you move the existing PPOR into the trust.

The advanatges are:

asset protection;
flexibility to change the income to suit your circumstances;
more tax deductions;
flexibility to distribute income to family members at a lower rate of tax;

Each of us feels differently about the pro's and con's but to my thinking, you would be silly to hold assets in your own names.

Having said that, if you decide to keep the PPOR as an IP you will need to arrange a valuation when it first becomes available for rent.

Yes, you can claim that the old PPOR is still your PPOR for up to 6 years however, in doing so, you cannot claim that the new property is also your PPOR.

Good luck an dhave fun

Dale

 

[Jas]

Originally posted by DaleGG
You could also consider a hybrid trust which will allow you to take advantage of negative gearing in the earlier years and still retain flexibility later on.

From this post Dale, am I right in assuming that you have finally decided on 'yes' to hybrid trusts?

What held you back for so long?

Curious Jas

 

[greener]

Hybrid Trust and taxable income

So Dale,
are you saying that the hybrid trust structure would take our taxable income into account unlike the discretionary family trust.
Kind Regards,

 

[DaleGG]

Hi

yes, a hybrid trust will allow you to offset your negative gearing losses against your wages.

Jas, I have done about 100 hours reseach over the last few months including talking to Chris Batten, Kevin Munro and a host of other solicitors . . . it has taken a while but the more I see of Hybrid trusts, the more I like.

Have fun

Dale