(Vic) Buying out spouse's share

[james.patre]

I have a similar situation to this gentleman: http://somersoft.com/forums/showthread.php?t=86993

My wife and I have a house in Vic as joint tenants. It's on a standard P&I loan and due to extra repayments it is now only owing 1K with 150K redraw available. The house is worth 400k.

If I do this:

1. Redraw the full 150K into our bank account.
2. I borrow an additional 200K to buy out my wife's share. Maybe this can be done as a refinance? I believe this transaction is exempt from stamp duty in Vic.
3. Rent out the house (which is now in my name), making it IP.
4. My wife and I use the funds (including the one in step 1) to buy a second property as PPOR.

My questions to the experts are:

• At the end of these steps, will I be able to deduct interest rate payments from the first house?
• Has the redraws and the extra payments in that first loan 'contaminated' the tax deductability of the loan on the first house?

 

[Rolf Latham]

if you do a spousal transfer, then the title name will change and you will need to re borrow anyways.

Structured correctly at least 200 k will be deductible from day one, with more becoming deductible over time,again is structured the right way.

Depending on ur marginal tax rate a sale to a unit trust may yield a better result middle to long term, even though you need to pay stamps

PS Redrawing the 150 provides no tax benefit since its purpose isnot for investment purposes

pls seek specific tax advice


ta

rolf

 

[james.patre]

Thank you Rolf - it makes sense. Although I'm not sure what you mean by "structured correctly, more will be deductible in the long term". Do you mean IO loan with renovations and other deductions down the line?

A related question: When the spousal transfer occur, assuming it's done at market value, how does that affect the cost base? Specifically, if the house is later demolished, subdivided, and 2 townhouses built on the site, what is the cost base for the CGT?

 

[Tigerboy]

When you make a transfer from an associate the ato will deem that the transfer service occurred for market value. Therefore your cost base will be half of the market value at time of transfer plus half of what you originally paid for it.

In Victoria there won't be any stamp yon the transfer.

As Rolf said make sure you get specific advice.

Huss Kaygusuz

 

[Terry_w]

to deduct interest you need to borrow to acquire an income producing asset. So you will need to borrow $200,000 to acquire your wife's 50% interest in the property (ie her share of the $400,000 value).

Various steps need to be undertaken for this to work. The first should probably be a private binding ruling from the ATO to make sure the interest will be deductible and that the ATO won't deny this under Party IVA.

you will then need a valuation to determine the market value
Apply for a loan
Get the conveyancing done
settle, paying money over like she was a stranger.

Seek legal advice...

 

[coastymike]

Terry noone told me about a party in iva. Always the last to get the invite.

 

[Terry_w]

Terry noone told me about a party in iva. Always the last to get the invite.

Ah yes, it was a great party. Bunch of accountants going wild...A bit like how we used to party back in 2012