Turning PPOR into a rental for 18 months

G'day all,

I will soon be heading overseas for 18 months with my family. During that time, we will be renting out our house. Since we've never done this before (this is our first house and we bought it only 16 months ago), I have a couple of questions, as follows:

  • The mortgage is in both mine and my wife's name. However at the moment, and in the next 2 years, she will be off work and therefore will not be getting any income. Accordingly, to maximise negative gearing, am I able to claim all rental income and expenses under my name only even though the mortgage is in both our names? I don't really want to change the mortgage details if I don't need to.
  • one of the fences in my property currently needs replacement. Is it more tax effective to fix it once it's a rental? Or does this not matter as fences would be considered 'capital works'? If I was to fix it now, could I claim any of the cost of the replacement fence in future tax returns??

Would really appreciate any input you guys can provide on this. I will no doubt have way more questions than the two above once we get closer to heading off.

Cheers!
 
G'day all,

I will soon be heading overseas for 18 months with my family. During that time, we will be renting out our house. Since we've never done this before (this is our first house and we bought it only 16 months ago), I have a couple of questions, as follows:

  • The mortgage is in both mine and my wife's name. However at the moment, and in the next 2 years, she will be off work and therefore will not be getting any income. Accordingly, to maximise negative gearing, am I able to claim all rental income and expenses under my name only even though the mortgage is in both our names? I don't really want to change the mortgage details if I don't need to.
Technically, it's not the mortgage that's important, but what's on the title (ownership). But given that the mortgage has both names on it, it's most likely that you will be "joint tenants" which means that the ownership (and hence any costs and rental) will have to be split evenly.
  • one of the fences in my property currently needs replacement. Is it more tax effective to fix it once it's a rental? Or does this not matter as fences would be considered 'capital works'? If I was to fix it now, could I claim any of the cost of the replacement fence in future tax returns??

Would really appreciate any input you guys can provide on this. I will no doubt have way more questions than the two above once we get closer to heading off.

Cheers!

Regarding the fence, I think you have it right - according to this article. My take on that would be that you can depreciate the value only, regardless of whether you replaced it prior to letting or during the tenancy.

Keep in mind that although you will still be CGT-free if you move back in within 6 years (or don't claim another PPOR in that time), any depreciation will need to be added back when (if) you sell. It may pay to get a valuation as you move out, just in case you never move back in and you lose the full CGT exemption. Loosely speaking, your growth from purchase until letting will be CGT-exempt; anything after that will be subject to CGT.
 
Thanks for the advice above. Much appreciated.

Now for the another question. As stated above, I purchased my PPOR about 16 months ago. I borrowed 300k and currently owe 260k with 31k available in redraw. Therefore I've made quite a significant amount of additional repayments on this mortgage. How much of that redraw am I allowed to take out prior to renting out the property to maximise my interest deductions? Or is this not allowed at all? For example, if I was to take 25k of the allowable 31k redraw and take it with me overseas as spending money, does this mean then that I will be allowed to claim interest on 285k once I begin to rent it out (i.e. in 3 to 4 months time)??

I have read about how redraws can make claiming interest on an IP really complicated, however I was thinking that this would only be the case if I redraw the funds when the property is already considered an IP. In my case, since it is still currently my PPOR, am I allowed to use the funds as I see fit at the moment?
 
I have read about how redraws can make claiming interest on an IP really complicated, however I was thinking that this would only be the case if I redraw the funds when the property is already considered an IP. In my case, since it is still currently my PPOR, am I allowed to use the funds as I see fit at the moment?

Nope, redraw for personal use will mean you can only claim part of the interest. The part you re-draw for personal use won't be deductible. Doesn't matter whether you do this now or later on. This is why you should never have a redraw on a home, but an offset account instead, for this very reason, you never know what the future holds and you might turn that home into an IP. Had you had an offset account, you can put what you like in and out of the account when you like without it having any affect on the loan itself.
 
bugger!!

how about this then: my bank currently takes out the required minimum repayment from my redraw amount (i.e. redraw amount decreases by the minimum repayment at the end of each month). What happens if I just don't deposit anything into the loan for the next few months (i.e. pocket the 1500 per fortnight that I would normally put in the account). I'm pretty sure my bank is cool with this so long amount available stays positive. Surely that is not considered redrawing from the loan?? In this situation, I would at least be able to save up the money required to go overseas in the next few months without actually physically redrawing funds from my mortgage (all the while, my redraw is actually decreasing)...
 
Capitalising the interest should be ok, but you had better check with your bank, unless you have a LOC then you pay still be classes as having missed a repayment even though you are ahead - and some LOCs even require you to pay the interest, at least, per month.
 
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