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Refinancing PPOR and IP1 to allow negative gearing?

Discussion in 'Property Finance' started by juzzy, 8th Oct, 2015.

  1. juzzy

    juzzy Well-Known Member

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    Is there a way to do this?

    Example.

    Person A and Person B live in their PPOR, but it is in Person A's name.

    They buy a new PPOR in joint names and their old one becomes IP1 (still only in Person A's name).

    However, 80% of the debt is in the new PPOR and 20% is in IP1 (Equity to buy new PPOR).

    How would you go about switching it to move more debt in to IP1 so you can have it negative geared rather than positive geared? I'm assuming it has to be done after settlement?

    Thanks
     
  2. Propertunity

    Propertunity Exclusive Real Estate Buyers Agent Business Member

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    You can't swap debt into an IP like that. You might get person B to take out a loan to buy the new IP1 (previously PPOR) from person A. However, that probably means Person B has to pay stamp duty on the purchase. There should be no CGT implications if the sale is made within 6 months of purchasing the new (80% debt laden) PPOR (using the 6 month overlap rule).
     
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  3. juzzy

    juzzy Well-Known Member

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    Thanks, I thought that might be the case, just wanted to see if there was a way to do it without having to sell from Person A to Person B.

    Cheers
     
  4. juzzy

    juzzy Well-Known Member

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    It starts to get messy if they want to move back in to IP1 in another 5 years though. Because then you can't just move the equity back and then you aren't CGT exempt if you sell the IP back to Person A as a PPOR, right?


    Ahhhh!!!!!
     
  5. Propertunity

    Propertunity Exclusive Real Estate Buyers Agent Business Member

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    That's correct. The tax deductibility of loan interest on a debt, goes to, not only the use of the money (on investment/s), but also if the loan has been paid down on the particular IP, it can't just be loaded up with debt again to get more tax deductions.
     
  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    You cannot shift debt but one can borrow to buy out the other. Depending on timing and which state there may be no stamp duty either.
    See my tax tips

    And plan ahead with the next main residence.
     
  7. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    I see you are in Melbourne and assume the property is too. So consider the strategy of the owner of the property selling to the other spouse - can be done without duty in VIC.
     
  8. juzzy

    juzzy Well-Known Member

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    Yes, both properties in Melbourne.

    Is it also CGT exempt from spouse to spouse? Say in 5 years time person B sells back to Person A and it has increased in value? Keep in mind person B would be selling an investment to Person A as a PPOR.

    I also need to double check to see if de facto counts as spouse or if we need to get married first.

    So confusing!

    Cheers
     
  9. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Spouse includes defacto. Normal main residence CGT applies.
     
  10. juzzy

    juzzy Well-Known Member

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    OK thanks.

    So I guess we need to see if it's even worthwhile with the CGT you would have to pay selling from one spouse to the other. Might be just easier (and perhaps cheaper) to pay the tax on being positive geared (plus the opportunity cost of any lost negative gearing benefits).

    Edit: Ok I think I figured it out.

    CGT free from Person A to Person B (selling PPOR)
    Pay CGT from Person B back to Person A when you move back in 5 years later

    If CGT is less than tax paid for positive gearing plus lost negative gearing benefits. Do it.

    If CGT is more, don't do it.
     
    Last edited: 8th Oct, 2015