PPOR - IP - Tax

[rambada]

This may seem a basic question but I need to sort this out. Am seeing my accountant but am looking for a heads up.

We had a PPOR, and have developed a duplex on another block. We like the new place so much we are moving in, renting out the second unit and our original PPOR. The new pair will be strata titled.
The query relates to juggling the loans around to maintain tax deductability. The original PPOR was debt free. The new one has land and development loans against it. There was a house on the duplex block originally which we rented out, then bulldozed to build this pair.
LVR and servicability aren't issues. Just how to structure it for the Tax department. Do we have to sell to a trust or to each other or to the dog????????? Any ideas please.

 

[DaleGG]

Hi Rambada

As you have identified, the fact that the old PPOR was debt free means that once that property becomes an IP then there will be no interest as a tax deduction on this property to offset the income that it earns.

To turn this around, it would be necessary to "sell" the property to:

a trust; or
to one of the individuals within the family.

Bear in mind that a sale to the trust will trigger stamp duty at market rates and that you might escape stamp duty depending upon where you are under the "love and devotion rules" when transferring the property between family.

If we transfer/sell the property to one spouse, then, the spouse will only be able to claim half the interest as he/she already owned 1/2 of the property before the transfer.

Messy huh?

Obviously, you should sit down with your own accountant to discuss these issues and more and when you do have in mind the longer term plans as well as the shorter term plans so that the big picture is clear to the accountant.

Dale

Originally posted by rambada
This may seem a basic question but I need to sort this out. Am seeing my accountant but am looking for a heads up.

We had a PPOR, and have developed a duplex on another block. We like the new place so much we are moving in, renting out the second unit and our original PPOR. The new pair will be strata titled.
The query relates to juggling the loans around to maintain tax deductability. The original PPOR was debt free. The new one has land and development loans against it. There was a house on the duplex block originally which we rented out, then bulldozed to build this pair.
LVR and servicability aren't issues. Just how to structure it for the Tax department. Do we have to sell to a trust or to each other or to the dog????????? Any ideas please.

 

[see_change]

One thing to keep in mind is that any profit you make on the PPOR when you sell it , ( assuming it has always been your PPOR ) is tax free and not subject to CGT.

Some people have a strategy of using their PPOR in a wealth development strategy because of this . There are some proviso's on this though.

See Change