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Some advice?

Discussion in 'Property Finance' started by SmallTime, 29th Jul, 2016.

  1. SmallTime

    SmallTime New Member

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    My situation,

    In 2004 I purchased a 2 bed apartment (circa 1997) at Northgate QLD and lived in it for 5 years.

    In 2009 I purchased a house at Virginia and it has been my PPOR since that time. I rented out the apartment at Northgate and have been receiving a rental income on it since.

    Next week I am going to put the apartment up for sale, as the saturation of apartments around the Nundah area make me feel there isn't too much more capital gains to be made on the apartment any more.

    Our intention is to also move out of Brisbane, and in the next year or two we move out of our current PPOR at Virginia, and turn it into a rental. The site at Virginia is a split lot 810sqm, so I am keen to hang onto it for further capital gains and possible development opportunity later.

    My questions are
    a) Do you agree that it would be a smart move to get rid of the apartment now?
    b) I am getting a retrospective valuation done on the apartment for the date I turned it into a rental in 2009. I'm not 100% clear on the 6 year PPOR extension rule for CGT, though I assume because I started generated an income on it in 2009 my CGT should be calculated from the value of the property in 2009 compared to the sale price now? (then applying the discount rule)
    c) For the sale of the apartment, should I move the profit from the sale into the offset of my current PPOR, or should I leave it as cash as a deposit for my next PPOR. This would maximise the mortgage when it turns the existing PPOR into a rental? (ie should I invest the profit of sale into equity of my existing PPOR, if I intend to turn my existing PPOR into a rental?)

    Thanks......it's friday!!
     
  2. albanga

    albanga Well-Known Member

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    1 - Unsure of the market, it could be a good time or it could not be. Probably more a question in the where to buy section of the forum.
    2 - CGT as far as I am aware will begin at the time you acquired the new PPOR in Virginia, not the second it started generating income.
    3 - Put the sale proceeds into the offset of your PPOR. Definitely DO NOT put it into the loans redraw if it's going to become an IP. That will be a very costly mistake. Also remember cash & offset are the same thing. Money in your offset is your cash.
     
  3. SmallTime

    SmallTime New Member

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    Thanks for the reply. In relation to answer 3, yes I would be intending to put the money into the offset and not the loan itself and redraw. You are confident that if I say put $200k on my offset, I can move all of that money out of my offset and use it as a deposit for my next ppor without error? I thought that may be considered 'dirty money'?
     
  4. albanga

    albanga Well-Known Member

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    Not at all, it is doing it like this that saves it from being "dirty" money. If you paid down the loan and then redrew it for your new PPOR without splitting it, THEN you would have dirty money.

    P.S - The term I think you mean is contaminated? Dirty money is if you were using your IP as a hydro lab to grow and sell weed. The profits would then be considered dirty.
     
  5. SmallTime

    SmallTime New Member

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    Ha ha ha gold! Thanks for the advice I appreciate it.
     
  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    a) No

    b) You could apply part main residence exemption (but then lose it for the current property for this period). Best to seek specific tax advice and run the numbers to see which property would be better for claiming the main residence exemption.

    c) Yes park the cash in the offset, not in the loan. One strategy to consider: For the new PPOR borrow 105%, without using the offset and then when you move in take your offset cash with you and park in a new offset on the new non-deductible loan. This way if you ever rent the new PPOR out you will have a higher deductible loan (with no interest disadvantage in the meantime)
     
    Perthguy likes this.
  7. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    See
    Tax Tip 82: Taking money from an offset account on an IP and Claiming Interest Tax Tip 82: Taking money from an offset account on an IP and Claiming Interest
     
  8. SmallTime

    SmallTime New Member

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    Hi Terry thank you for the advice.

    a) Is there any reason why you do not agree that it is a good time to dispose of the property?

    b) Thanks for the answer, yes I am going to seek specific tax advice.

    c) This sounds like a good strategy to consider, I will also talk to my accountant regarding this option. If I borrow 105% would it not be subject to mortgage insurance as the LVR is greater than 80%?
     
    Last edited: 29th Jul, 2016
  9. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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