Turning PPOR into negative geared IP - is it possible and legal?

H

Hypnotic Cat

Greetings all,
I'm new here and would really appreciate some advice on my situation.

I bought a property in 1993 which I own outright. It's currently valued around $350k to $385k.

I lived in it for most of that time, but I have realised I don't want to live in it any longer. In fact, I’m not currently living in it, it’s unoccupied.

So… it’s definitely reached its 'use by date' for me, that much is clear, even though I've spent about $20k on upgrades and renovations recently, getting it ready to either sell or rent out.

However, I also recognise it’s a good property in a good suburb (about 6km from city and about the same to local beaches) so I have wondered whether there’s a way of keeping it and turning it into a negatively geared IP?

Could I borrow money against it to buy my next PPOR and claim tax deductions on the IP?

I asked my accountant about it, she thinks the ATO would definitely see that scenario as tax evasion.

Any suggestions on how to turn the property into a negatively geared IP without legal hassles with the ATO?

Thanking you in anticipation.
 
Hypnotic Cat said:
Could I borrow money against it to buy my next PPOR and claim tax deductions on the IP?

No, you cannot do that.

Any suggestions on how to turn the property into a negatively geared IP without legal hassles with the ATO?
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If it is in your name, you could sell it to your partner. It would probably cost you thousands in stamp duty but, depending on tax brackets, whether you have a partner, whose name it is in etc, it is one idea.
 
BFT said:
Other than stamp duty (which is exempt in Vic for spouse to spouse) what other costs are we talking?
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For a spousal sale?

You would want to get some legal and taxation advice and need to do the conveyancing from one name to another.

Also loan exit and entry fees.
 
Thanks Terry.

Compared to the tax savings as a result of a spousal sale, the above costs are insignificant imo.

I was curious as we will be turning our PPOR into an IP in the next 12 months and a spousal sale is what we are looking at doing if we can make it work.
 
BFT said:
I was curious as we will be turning our PPOR into an IP in the next 12 months and a spousal sale is what we are looking at doing if we can make it work.
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If the property is in the name of the spouse only then the negative gearing can only offset the spouse's income.
 
Correct. One of us earns double the other so guess who is buying the property from the other.

The plan is to sell the property to a spouse at current market value which at 90% LVR would be about $90k more than the current mortgage, we will use that $90k as a deposit for our next PPOR and rent out current PPOR making that mortgage tax deductible.
 
BFT said:
Correct. One of us earns double the other so guess who is buying the property from the other.

The plan is to sell the property to a spouse at current market value which at 90% LVR would be about $90k more than the current mortgage, we will use that $90k as a deposit for our next PPOR and rent out current PPOR making that mortgage tax deductible.
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Mate be careful, it doesn't work that way, I am in a similar position and can't do what you are doing. You can not blow out the mortgage on the current PPOR and then turn it into an IP and claim all the interest. You can only claim the interest on what you currently owe on the place. It sucks but its the law. Read the tax ruling today, no way around it, huge penalties if you get busted. Get some accountant advice before you lock it in if thats what you do, or just listen to the very wise heads on this forum that will tell you to hold your horses ... so to speak.
 
SRB said:
Mate be careful, it doesn't work that way, I am in a similar position and can't do what you are doing. You can not blow out the mortgage on the current PPOR and then turn it into an IP and claim all the interest. You can only claim the interest on what you currently owe on the place. It sucks but its the law. Read the tax ruling today, no way around it, huge penalties if you get busted. Get some accountant advice before you lock it in if thats what you do, or just listen to the very wise heads on this forum that will tell you to hold your horses ... so to speak.
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There is a purchase by one spouse from the other spouse. Not just an increasing of a loan
 
Last edited:
Thanks again to everyone for your advice and wisdom. It looks like it's not feasible to do. So I will look at selling the property and purchasing a new PPOR with the view to a separate IP purchase later.

Thank you
 
Similar scenArio

Hi there

Looking to build IP move into it for 12 months to reduce CGT then move back into PPOR which we would need to rent in the interim.Can it be done???

Thanks.
 
Implications for PPOR

Hi Terry

Thanks for the reply. By implications are you referring to the capital gains implications if have to sell PPOR in the future? We are never planning to sell, however, it has been an IP for 12 months already. Is there something more I am missing?:confused:

Regards

Vanessa
 
Lucky88 said:
Hi Terry

Thanks for the reply. By implications are you referring to the capital gains implications if have to sell PPOR in the future? We are never planning to sell, however, it has been an IP for 12 months already. Is there something more I am missing?:confused:

Regards

Vanessa
Click to expand...

Yes, you won't get the CGT exemption on both properties.
 
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