Options to "re-finance" PPOR to negatively geared investment (if any)

Hi All,

I'm looking for any option to enable renting out a PPOR that I own completely (no mortgage). The house is up for sale but not shifting (what is at the moment?) and we've found somewhere else so looking at what can be done. Not sure if any of the following is possible/legal so I thought I'd ask here:

1. Re-mortgage house and rent it out negatively geared. My understanding of the ATO rules is that's a complete no-no?

2. Sell the house to a relative or other friendly party as an investment, they take out mortgage so it's negatively geared. We effectively make the repayments to the new owner so they're not out of pocket and we worry about sharing tax savings later - it's not a high maintenance property anyway so usually only makes a tiny net loss with rental vs interest expense & depreciation. Just wondering how that works with stamp duty (exempt if sold to family member?) and how closely the ATO would look at the transaction along with the funds coming from me to the new mortgage holder.

3. Something else?

The more I think about it I guess nothing can really be done and the risk around trying to dodgy it into an investment isn't worth it unless someone has a magic solution

Thanks.

 

Have a look at @Terry_w tips

 

1. Sale to spouse (if property just owned in your name)
2. Sale to family/friend
3. Sale to entity (company/trust)

 

Hi Intajaz,

I think the first thing you need to ask yourself, is this a good investment? Would you buy this property now if you didn't already own it?

Unfortunately you are correct here. As @Scott No Mates says, have a look at the Terry's tax tips.

Have you considered selling to a trust that you control? You will have to double check the laws in QLD around stamp duty, but I would guess it would be treated as a standard sale and stamp duty/capital gains tax would apply.

 

My understanding only.

1. Complete no-no. Property paid off.

2. Sure, sell it and rent it back. So long as at market values all ok. Stamp duty probably payable depending on state and relationship.

3. Keep the property. Rent it out. Pay any tax. Only do this if you can see future good capital gain.

4. Sell on the open market. Sure you may have to accept a lower price, but maybe purchase at a lower price too. Swings and roundabouts.

5. Stay living where you are.
Marg

 

Strategy: 11 Strategies for when you move out of the PPOR and keep it https://propertychat.com.au/communi...n-you-move-out-of-the-ppor-and-keep-it.11311/

 

Selling resi property that you own to your SMSF is a no-no. No-can-do.

 

Very good point!

 

Borrowing against the property to invest is fine and no sale is needed. You just cant claim the deduction against the same rental income. .It can be claimed against other income. Overall it may be similiar.

Its a question of what you do with the funds....Why would you effectively give away the asset ? It depends on your investment views and what you are seeking . Capital growth (if so why sell it?), perhaps buy an income producing investment - Financial investments or a business that is profitable.

So you sell it. Then use the cash to buy a new property......Havent you just done the same thing you could do if you use the equity ?

 

Thanks all some very helpful replies.

@Brady @Simon Moore I don't have a trust setup so I will have to look into that. Although reading Terry's 11 strategies it might be a bit risky to setup a trust, sell directly to it and then claim deductions. Something about a thing called Tax Avoidance LOL.

@Simon Moore the key point is if we keep it we (possibly) win twice by A. buying new and better PPOR at a very low point in the market and B. having the existing PPOR to sell into a higher market. All speculation of course

@Paul@PFI you're saying we could take out a mortgage over the property as an investment then claim that as a deduction against OTHER income - eg my yearly salary for eg? Seems too good to be true. Would we have to move out, rent it out THEN take out the loan against the property? I should have elaborated in the OP, we're not giving it away - it'd still be "ours", just in another mortgagee's name, we'd cover all borrowing costs, repayments, etc. Selling into another name is just to avoid the ATO rules - again I'd think Tax Avoidance is the issue.

Sounds like a trust may be an option but again would need legal advice, tax advice and possibly an ATO ruling on the scenario overall.

That or just lower the price on current PPOR and try and get a sale...

 

Not sure if I mentioned in that threat but I had a positive private ruling for the clients who did the sale to the unit trust. Interest was deductible and no the ATO would not apply Part IVA to deny the deduction.

 

This is a link to the private ruling I obtained for those clients
RBA Content

 

Not against ordinary income. If you borrow against the house and buy another IP using those loan monies then you can offset the rental income from that property with the interest on the loan.
Or you could buy a business. You may also be a ideal candidate to do a ungeared unit trust strategy that lets all the positive income get earned by a superfund and negative gearing claimed personally. Get advice.

If your name isnt on title you are not the legal owner. If you undertake a scheme then the property may held by another party on trust and a vast array of other issues arise. One of worst ones I would think is the friend goes broke or borrows against your home. You cant exactly go to a court and tell them that story....Thinking your scenario aloud.

You transfer your home to someone who doesnt live in it (no main residence exemption) and they will borrow $ against your home and you will let them. Sure they give you the $... And you will use that money to.....(fill in the blank).......You see the issue. You dont have to sell to do that.

I have a great strategy - I send you a invoice for $1m of tax advice. You claim the tax loss. All solved.

 

What do you mean by this statement. A mortgagee is one who takes the property as security - such as a bank.

You might mean mortgagor, but who does it get into someone else's name and why are you still the 'owner'?

 

LOL ""avoid the ATO rules""....Tax law isnt optional. Tax law creates the framework which is applied to all taxpayers.

 

And the ATO does even make the rules, the just administer the laws relating to tax.

 

Can you withdraw a % of equity in cash from a fully paid off PPOR i.e. create a loan against the PPOR

 

Yes

But the interest won't be deductible

 

Thanks all great replies. So what if instead of trying to sell it, we take out a mortgage for improvements. A shed, new kitchen, new bathroom, painting, polished floors, turfed yard, new fencing would probably add up to $60K. All these have been done in the last 2 years anyway.

So we take out that loan now, it'll take a while to find land, build new house, etc, etc. in which time it looks a bit more sensible to have done improvements then decided to buy and build elsewhere.

PPOR now has 60K mortgage taken over 10 years for example, $643/month repayments, that's at least something to offset the rental income?

Thinking aloud the opportunity cost vs selling current PPOR at market (cheap) is interest on $60K mortgage, extra repayments on next PPOR vs using current PPOR proceeds and no doubt other dis-benefits.

Looks like the only sensible option is make this place as saleable as possible and sell it...

 

But did you borrow to do them at that time?

You cannot borrow for something you already have paid for and have the interest deductible.

Interest on a $60k loan would be about $225 per month not $643 - are you looking at PI loan repayments? If so only the interest would be deductible