Tax deduction for Principle place of residence



From: Anonymous

I went to a seminar a few weeks ago where the speaker mentioned that it is possible to claim the repayments on your own home (both principle and interest) as a tax deduction. (other than claiming it for running a business from home). They didn't provide any details because they wanted people to sign up for their 5 day course-which costs $5000.

Does anyone know anything about this??

They also mentioned that it is possible to get a 'double tax deduction' on mobile phones and laptops. I think this is possible through salary sacrifice and then claiming it as a deduction as well.

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Reply: 1
From: Michael G


Without knowing any more, I'd say what they're suggesting is transferring your home into a family trust.

In theory moving an asset from your name into such an entity would incur no capital gains because if the ownership of the trust is the same as the ownership of the property (ie nothing changes), then this shouldnt be a problem (of course this is a case for legal advice).

Once the property is in this seperate entity you could then rent this property (because it is controlled by a seperate entity).

Basically the because the property is now collecting rent, interest on the loan is now deductable.

So the rent you now pay into the trust, would offset the cost of the interest, but also the depreciation of the property would be a further deduction.

Downside is you lose the capital gains tax free bonus, as this would no longer be your principal place of residence, so if you sold it you would pay CGT through the trust.

Any other people would like to ad to this?

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Reply: 1.1
From: Apprentice Millionaire

Let me preface my comment by saying I am not a legal or taxation expert, but this was mentioned to me by my tax accountant.

>Without knowing any more, I'd say what they're suggesting is
>transferring your home into a family trust.
[snip snip ----8<---]
>Once the property is in this seperate entity you could then
>rent this property (because it is controlled by a seperate entity).

My tax accountant mentioned the Tax Office took a very dim view of this sort of arrangement, and unless there was an arm's length situation (the renter was not related at all to the family trust), it would not allow a tax deduction.

Apprentice Millionaire
(aka Jacques in the old forum)
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Reply: 1.1.1
From: Duncan M

>My tax accountant mentioned
>the Tax Office took a very dim
>view of this sort of
>arrangement, and unless there
>was an arm's length situation
>(the renter was not related at
>all to the family trust), it
>would not allow a tax

Lets not also forget that its a pointless exercise unless there is other income producing assets within the Trust.

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From: Anonymous

If you were to transfer your house to your trust you could negative gear it initially. But long term it will eventually become positively geared (as the loan is paid off and rents rise-you would have to pay market rent). So evetnually you (the trust) would have to pay tax on the 'profit' made.
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From: Sim' Hampel

No, you CANNOT 'negatively gear' property held in a trust. But let me explain a few definitions first.

The definition of negative gearing is that the total expenses including interest payments for an investment are greater then the income earned. This means you make a loss on that property.

The ATO allows you to offset that loss against other income, including PAYE income if you hold the property in your own name.

If you hold the property in a trust, you can not pass the losses onto the beneficiaries, so therefore you cannot offset the loss against your PAYE income. The ability to do this is what provides the attractiveness of negative gearing to investors, particularly those on the top marginal tax rate.

If you hold the property in a trust you can only offset the loss against other income from that trust, or carry it forward to offset against future income from that trust. While there is nothing wrong with doing so, you must be aware that you will not be getting the same level of tax advantages (ie. getting a tax return in the year the loss was made) as you would if you held the property in your own name.

So technically this means you CAN negatively gear property held in a trust, but you do not get the PAYE offset benefits that most people associate with negative gearing.

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From: Dale Gatherum-Goss

A trust, at this time, does not pay tax at all. It distributes the income to a beneficiary who may or may not pay tax depending upon that individuals circumstances.

For example, children can earn $643 per year without paying tax. If you have three children, you can legally avoid tax on $1,929 worth of income.

Furthermore, if you have grandchildren . . . yes, the same principle applies.

I hope that this helps

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Reply: 2
From: Dale Gatherum-Goss

A company or trust can allow you to get a double tax deduction for things like laptop computers and mobile phones quite simply.

The individual buys the item and the company/trust reimburses them. Both get a tax deduction and there is no FBT.

I hope that this helps

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Reply: 2.1
From: Marina. L

Hi Dale,

We have a house that we own outright and we are currently building our dream home. We will rent out the new home for about a year that way we can claim all the interest payments on the progress payments and get some huge tax deductions along the way.

Anyway once we move in to the new home, the rent on the old home will be assessable and we won't be able to claim anything on the new home. We will have a huge non-deductible debt.

How would we be able to structure our affairs using trusts/companies to get around this using what was mentioned in the previous posts.

Eg. how do we set this up so the interest on the new home is tax deductible.?

Is there anyway of refinancing the old home and putting the lump sum into the new home and then claiming the interest on the old home? etc etc

Any ideas would be appreciated.

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Reply: 2.1.1
From: GoAnna !

I thought you couldn't claim interest payments unless the property is available for rent at the time. Surely this would mean that you can't claim the costs during building process? Or the deposit money before you settle?

If I am wrong give me a cyber slap and give me the correct answer. Thanks!

GoAnna !
(aka Anna before she got real)
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Reply: 3
From: Keith J

I work from home, my business can claim for the part of my home that is used to carry out business as a business expense. Since you do your IP business admin and phone calls at home (and NOT at your day job, of course) you can claim that. I would have thought that was what they were getting at.

I seem to remember there are ATO rules about calculating %age of floor area, and whether the area is dedicated to business use when deciding how much of your P&I you can claim.

The downside is that that percentage of your home will be liable for CGT.
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From: Marina. L

Hi Go Anna,

When you BUILD an Investment Property you can claim the interest payments through out the course of building the rental property.

So if you are paying 10K interest on the funds borrowed from the bank to build your rental property you can fully claim this even though currently there are no tenants in there.

However if you are borrowing the 10k for the interest payments then you will not be able to claim the interest on the interest (10K) (this is called capitalized interest), but you can still claim the initial 10K.

As long as the purpose is for an investment property you can claim interest, travelling, bank fees, postage, Home decorator magazines, etc etc.even before it is rented out.

That is why we are going to rent out our dream home for about a year and a half.
It just makes more sense financially to do it that way.

Our friends think we are CRAZY.


This is arial
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Reply: 2.1.2
From: Dale Gatherum-Goss

Hi Marina

This is a very common problem. You are right to say that the existing house will not have any interest that you can claim against the rental income.

Let's assume that your primary purpose is to reduce your tax on this investment.

If you sell the house to an entity (company or trust) that you own you will incur stamp duty on the sale unless you can prove to the authorities that you remain the beneficial owner of that property. This is more of a legal issue and one that I cannot help with.

Then, the new entity borrows the money to buy the property from you and you use that money to reduce your new home loan debt. That is, we have transferred the debt so that it can be applied to the income.

The other downfall is that if you ever sell that house, you will face CGT depending upon the circumstances.

I hope that this helps.

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