Property Tax / Accounting Advice Required

Hi Gurus,

I've just stumbled across this while searching for a property accountant in Melbourne and thought I would just bite the bullet and post - please don't bite back!

I need some advise and ideally a recommendation for an accountant to assist in structuring our (Me & Wife) finances.

The story is that we have been using our owner occupier loan (P&I) to fund the construction of a unit which will be an investment property. The 'land' has been purchased from my inlaws and will settle upon subdivision, ie when the construction is completed. The advice I need is related to how we restructure our finances and weather we can simply 'transfer' the debt used to construct the unit - which we have builder invoices to provide evidence - or not. My lender (NAB) suggested I seek advice from my accountant before we proceed. The new property is planned to be in both our names at this stage although my wife is only working part time for the next ~18 months while I have a full time job. This will also need to be considered in how we move forward.

Another point in this process is that our current PPOR is only in my name, my wife wants to be added to the title, should we do the everything at the same time? everything being, shift debt, new investment loan and transfer title to both our names which will trigger re-finance.

I don't really understand much about property tax and laws, but am willing to learn. We'd both prefer to receive the professional advice now so we know how to move forward.

- The investment will be valued at around $900K and the building + land costs will be around $700K.
- Currently PPOR mortgage is around $560 which close to $400K can be attributed to the investment costs.

Hope this all makes sense.

Cheers,
Mahir

 

Mate you need legal advice as well as tax advice - not accounting advice.

interest will only be deductible if it was incurred on borrowed money which was used for buying, buidling or improving the property.

When you transferred the land did you enter into a contract of sale. What was the amount - was it market value?

if the parents contracted with the builders and paid the builders that is irrelevant to you deducting the interest. If you borrowed money to pay the builders after you have purchased the land at full market value then you should be right. if not you have shot yourself in the foot.

And you don't just add a person to title, but you have to think of the far reaching legal consequences of doing this - stamp duty, loans, deductibility of interest, asset protection, estate planning, accessing future equity etc.

Seek legal advice.

 

Hi Terry_w,

The land hasn't been transferred as of yet but we have entered into a contract of sale at market value. The transfer will go through in the next month or 2 after subdivision is completed.

Our current PPOR is our home, it is only in my name at this stage and my wife wants to be on the title. I can see it as being our PPOR for at least the next 5 years. There is no stamp duty payable on a spouse transfer from what I've read, the loans and asset planning are all shared.

 

Its seems you are purchasing land with a completed construction on it from the inlaws. There are some concerns with how its been paid as monies used so far dont "seem" to be funding an acquisition but it could be argued you have acquired a CGT right for the land improvements. The contract will replace those rights when its settled.

The parents may be looking at some serious tax issues such as GST and also income tax arising from this. Basically they seem to own a new build and will sell it to you...That triggers GST as its new residential premises. The question is - Are they conducting an enterprise. It may be argued they are. And you are part of it. The could lose a part of the sale proceeds to GST. Perhaps they can claim GST on the build and reduce GST by using the margin scheme - It may not be that bad. BUT....The contract may not comply and could force a higher GST cost. The contract means they have already triggered a tax issue for the land etc and it may not have been reported in the correct tax period. Bthen I suspect there could be stamp duty issues too as the duty will be based on the completed value not the pre-construction land. That will add to costs. You really should have obtained advice before commencing.

I would agree that some legal and tax advice are needed. Broker guidance would also be recommended so that maximum borrowing capacity is available. These sorts of finance issues arent always vanilla for all lenders and a good broker may consider other lenders than NAB. Refinance should pose no problem since you will be buying all of these things from the parents.

 

What do you mean by:
"Currently PPOR mortgage is around $560 which close to $400K can be attributed to the investment costs."

What investment costs?

and:
"weather we can simply 'transfer' the debt used to construct the unit - which we have builder invoices to provide evidence - or not."

What invoices?

 

Agree that it needs some consideration as to what is being paid for.

"We have" builders invoices....The parents may have builders invoices. Its not normal to pay to build on someone elses land.

 

so some more details to help.

The land is owned by inlaws and a subdivision application was put in place on the land to split it down the middle. Before any construction commenced we signed a contract at market value to purchase the land and transferred a deposit. All i's dotted and t's crossed, which included valuations, rates, subdivision plans, etc. The terms of the contract were to settle upon completion of the subdivision.

We had a verbal agreement with them that we would build two units on the land which all costs would be split 50/50. The signed the contract with the builder but I have been project managing the project and making payments from my account direct to the builder. My wife and I have used the available finances in our offset to finance the construction costs while my FIL has transferred his share across to our accounts.

The final conditions of the subdivision require new cross-overs and landscaping to be completed which is coming up now.

The CGT and GST components I have no idea about and seems that I would need to seek further clarification and advice on.

The invoices refer to the builders payments and construction costs.
The investment costs refer to our costs incurred during the building to cover our share of the building costs.

 

oh dear!

Sounds complicated.

 

CGT rights+ Enterprise (Partnership) with trading stock issues being contributed by the respective parties. Thats fairly straight forward. the complex part is making it compliant and fixing errors that may already have occurred.

And a handful of tax problems

I cant see the margin scheme being available. Ouch...basically GST on land that could have been avoided.
Stamp duty will be excessive to what it could have been. Ouch.
CGT ???

Deductibility for interest fairly straight fwd....Active use of proceeds to produce assessable income.

Other issue is that as buyer you may well be paying tax on profits you dont receive if you hold the property.

 

Why is there CGT and what do you mean that stamp duty will be excessive? Shouldn't stamp duty apply to our agreed contract?

 

Yes. Inclusive of the construction, not the vacant land.
CGT likely wont apply
GST would likely apply