PPOR to IP Tax advice

Hey guys,

Long time reader, first time poster.
I purchased a PPOR in 2008 for my parents, siblings and I to live in. We have refinaced twice over the years for renovations and to pay off debt.

I moved out of the PPOR in 2012 to rent on my own while my family continued to pay the mortgage.

Fast forward to today and I have refinaced the PPOR and secured an Investment Loan which in turn makes my PPOR an Investment Property while I search for a property to buy and turn into my PPOR.

My siblings have been in the property paying the mortgage and will continue to do so for the foreseeable future. I have been contributing to this mortgage for the last year as from an IP perspective, it would be negatively geared.

I am reading/listening to as many Property investment books, articles and podcast as I can find before seeking paid professional services.

To receive the full tax benefits of negative gearing for the IP while I search for a PPOR to buy (Stage 4 lockdown sure doesn't help) what would be my next steps?

My broker sold the situation to the lender as a private lease agreement between my family and I. I'm thinking I would get a private rental agreement signed by both parties and produce monthly rental receipts.

Any advice would be appreciated. I've already read some great advice on these forums
Cheers

 

Work out the portion of the loan that relates to the property and split the loan. The enter a written lease at market value and get your family to actually pay rent. If you want to claim things.

You might be better off not doing this tho.

Seek specific advice

 

Hey Terry, I was hoping you'd drop in. I've enjoyed reading your threads on this forum. I am still making my way through all your threads. A lot to catch up on

Would the full investment loan not relate to the property as a whole after the refinance? I only just settled on the loan yesterday so not sure yet if I'd be able to split the loan just yet.

Since the PPOR purchase in 08 we've just been putting $ into a joint account to cover the outgoings (mortgage, insurance, rates) but now with the Investment loan and purchasing another property I'm thinking to draw up a private rental agreement and put a structure into place.

Will be looking for a good property tax accountant in Melbourne and will continue to read up on everything

Cheers

 

It depends if you have borrowed extra over the years.
What did you mean by:
" We have refinaced twice over the years for renovations and to pay off debt."

 

Ahh I only just realised what you meant after I posted my reply.
In 2012 we refinaced and borrowed to build an outdoor pergola onto the PPOR and to fund a wedding.
In 2019 we refinanced to pay off all our debts.
In 2020 we refinanced to cash out to purchase property and in the process turned the PPOR into IP.
Now I see that the loan will be considered contaminated/mixed and therefore would not be able to claim any tax deductions from the IP unless I calculate which portion of the loan is home loan related, split the loan and claim the tax deductions on the home loan/IP portion.

 

Sounds to me like its NOT 100% deductible. A blended loan esp re 2019. And a third blended purpose with the 2020 cashout. A mess.

If the family paid the loan previously that may actually be assessable income.
They dont generally have a obligation to pay another persons loan. So what you received may have been income BUT this doesnt eman 100% of costs are deductible either. You may need to consider tax advice about this and determine if you have a capacity to claim deductions and what % etc

A evasion and avoidance concern ? The ATO have some newer sophisticated bank account monitoring tools and farm data about persons making transfers to anothers accounts esp where it is property related. I have seen a few ATO queries in recent months. And small businesses where the ATO knows the total $$$ deposited to a work account. banks are providing the data in XML and its helping them plota 3D model of transfers and movemenst of funds. One taxpayer was queried as a credit seemd to be from a share broker but he didnt report any income etc. They queried CGT and it was more a warning letter than a review - Its was from his spouses trades and was legit so I retained notes if they do chase it up.

 

Thanks guys for your advice.
I have had the property for 13 years, refinaced and reborrowed 3 times and gone through 3 different lenders.
I am gathering all the home loan statements for that whole period. Will I also need receipts for what I spend the borrowed funds for?
If I keep the situation the way it is (siblings live in and pay the mortgage on original PPOR that is now on an investment property loan) and I don't seek to claim any tax deductions but I buy a separate PPOR, what problems would I have in future in regards to tax?
Cheers

 

You would still need to work out the cost base expense for CGT, including apportioning the interest

 

A bit of a mess really. You likely need some tax advice concerning several aspects of your ideas and thoughts.

• What period was the property exempt
• What period is not exempt as your main residence
• What was the costbase and can you add to it ?
• What % of outgoings are deductible and what income is assessable
• What % if any of loan is deductible adn how to calc that
• Merits of depreciation
• Issues with a third party paying your loan...and not declaring income

 

I've decided to ask in this thread instead of opening a new topic.

Our new investment property is being settled in 3 business days (next Wed). We are needing to pay $35k to our legel providers trust account to make sure all finds are available on day of settlement (current bank loans (old property) are being transferred to new bank (new investment) on the same day as settlement).

We do have the required estimated $35k, but in seperate transaction accounts (ie: savings and redraw of ppor).

My question: PPOR has $17,909 in redraw available. When we withdraw this amount and transfer into our offset (to make the actual $35k), then transferring to legal provider a day before settlement for things to go smooth.

Is is easy to seperatly clarify that when I take out ($17k ish) for a non deductable emergency funding of an investment property (ie: using PPOR money) to be signed and sealed on settlement day?

Once all the bank transfers are complete and done, I will then (or can just keep in offset) pay back what was used for new property purchase. It may be 1 or more business days before the funds are repaid.

I do know of the tax cross contamination of non ato funds use (can't remember definition, mixed loan?), but want to get everything sorted for tax time / future audits.

I don't know how I can explain (sorry for any spelling issues, using mobile phone). Cut and paste from an email received:


"As your refinance will occur simultaneously with your purchase, the exact funds available for settlement will not be uploaded until the morning of settlement."

"Therefore I refer you to the attached Statement of Account for my estimated calculation of funds required for settlement."

 

Bump.

 

If you are using non-deductible funds and then repay the excessive non deductible (based on the excess amount) it shouldnt impact the deductible use. If you inflated deductible use I would see a possible concern eg You draw down a $200K loan and only use $197K of it and then bank the $3K excess into your own home loan.

If in doubt get advice.