Changing ownership when converting PPOR to IP

Discussion in 'Investment Strategy' started by Lachlan86, 11th Feb, 2020.

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  1. Lachlan86

    Lachlan86 Member

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    Hi all,
    I am new to this forum so this is my first post :) Hoping somebody might be able to help me understand the pros and cons of transfering property ownership between partners.

    We have just put a contract on a house that will become our new PPOR and are wanting to turn our existing PPOR into an IP. There are a couple of issues with doing this, the first being that instead of saving money in an offset account we have been making double repayments on our home loan for the last 4 years and also for asset protection purposes our existing PPOR is 99% in my wife's name and 1% in mine. My wife is by far the lower income earner due to working part time so obviously not a good situation all round to be in for tax purposes.

    What I would like to know is if we need to flip ownership in order to be able to secure a mortgage to cover our new home, meaning I secure a loan to purchase my wife's shares in our house first, would this be viewed as a tax avoidance strategy by the ATO. We were informed by our mortgage broker today that lenders will look at the existing 99/1% ownership and the resulting cash flow issues this creates (I am guessing deductions/rental income/returns etc) and this may effect our borrowing capacity. I know we would need to pay stamp duty, however it would mean that we could then claim higher deductions etc when our PPOR becomes an IP.
    Any info would be greatly appreciated.
    Thanks
     
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    See my posts on spousal transfers.

    You have a number of tax and legal issues to consider. If you flip the ownership there is unlikely to be any interest being deductible at all. But if the 1% owner buys out the 99% owner there could be.

    You need specific legal and tax advice.
     
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  3. Lachlan86

    Lachlan86 Member

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    Thanks Terry. I didn't word it very well but my plan was for the 1% owner (me) to buy out the 99% owner (my wife).
     
  4. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    As long as you become the sole owner you could potentially claim all the interest on the loan if set up right - market value transfer, contracts, money borrowed, money paid out, Part IVA considered etc

    best to seek specific legal advice.
     
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  5. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member

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    Insurance Costs money I guess.

    hard to see how we can get both the asset protection and the deductability

    A good accountant can help on the tax side, but NOT in isolation of specific credit advice.

    A few times, potential borrowers have come to us, and the convoluted structures so restricted the availabilty of finance availability that only 3rd tier lenders would consider the structure

    Ta

    rolf
     
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  6. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    I should also point out that having 99/1 on title really provides little asset protection in itself.

    Rolf's point is a good one, not sense in paying for advice if you don't have the ability to fund it, so perhaps check this first.
     
  7. Lachlan86

    Lachlan86 Member

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    Thanks Rolf. I realise this would mean no asset protection but was hoping it would at least help get the investment structure right moving forward. Sounds like we need to find someone to provide legal and credit advice. If you have any recommendations for someone in Brisbane, please let me know.
     
  8. Lachlan86

    Lachlan86 Member

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    Thanks Terry. We did seek legal advice on doing it this way at the outset and were advised that providing all money trails, mortgage repayments, expenses etc came from my wifes account only then this would provide some level of asset protection. We obviously never considered at the time that we might want our existing property to be an investment in the future though.
     
  9. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    As long as the wife paid for everything it would provide for some good asset protection if you were to become bankrupt - but not on family law side.
     
  10. Lachlan86

    Lachlan86 Member

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    Correct. We weren't worried about the family law side. It was to protect the asset to some degree from the risks associated with being a Director in a small family business which my wife is not part of.
     
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