Strategy: Rent where you live and Buy Investment Properties

Discussion in 'Investment Strategy' started by Terry_w, 25th Nov, 2015.

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  1. Eugene82

    Eugene82 Well-Known Member

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    From your salary/other sources of income
     
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    I think it would be $30,000 - $13,320 = $16,680

    You get some tax savings which reduces the outgoings.
     
  3. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Sorry, I misunderstood what you were asking, yes you would fund the rent from your income but the tax savings would subsidise it.
     
  4. vjsingh

    vjsingh Member

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    Ok, so it was just the last bit which confused me - reducing your rent by the tax saving but without adding on the extra $16k expenses. I see now that you were just indicating that there were tax savings to be had across all of your taxable income, but of course there are still costs involved in holding an IP which mean in this scenario you would still be out of pocket more than if you just rented. Yeah?
     
  5. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    I guess it would depend on whether the investment property produces a positive income after tax.
     
  6. standtall

    standtall Well-Known Member

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    A totally different personal experience.

    • Rented a 4 bedroom house for around $4000 a month in inner west for 4 years while having invested in 2 apartments in the area.
    • Bought a PPOR in Northwest with same cash outflow last year. A little longer commute to work (in North Ryde) but better schools and lifestyle. PPOR is also up in value by $150K in just over a year.
     
  7. Johnny Smith

    Johnny Smith Member

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    This strategy seems great! Can you claim the 6 year rule on a property for which you have an investor loan? Assuming I moved in upon purchase and moved out say 6 months later?
     
  8. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Yes.
     
  9. MyPropertyPro

    MyPropertyPro REBAA Buyer's Agents Sutherland Shire & Surrounds Business Member

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    I actually haven't heard of this but my first alarm bells would be:

    1. I very much doubt you could sell a property from a trust back to the person at break even 20 years later to avoid CGT obligations. If you didn't do this you wouldn't get the CGT exemption as it doesn't exist for a trust and is one major benefit for owning a PPoR in the name of a real person. For example, if you sell a market value $500k property to a family member for $1.00 to try and avoid stamp duty you still have to pay stamp duty on the market value. I would assume there is legislation to cover this scenario.

    2. When you sell the property to the trust in the first instance you have to pay stamp duty on that transfer and in the reverse if you sell it back (even if my first point can be done, you can't avoid the stamp duty).

    Having said that, I'm interested to hear more as I've never heard of it so please post if you have any more info!
     
  10. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Granting a life interest is a CGT event too. As is surrendering a life interest.

    in NSW there is no land tax exemption for tax owned land even if you have a life interest - the exception is a testamentary trust
     
  11. Cactus

    Cactus Well-Known Member

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    You only sell it into the trust once not back again. So yes you pay stamp duty on the transfer. As @Terry says you pay cgt when you grant and relinquish the life interest too, but my understanding is if ppor you are exempt.

    The benefits to my understanding are asset protection, deductibility of expenses associated with the property and the retention of the ppor exemption on cgt for the life interest component I.e. The uplift from the sale date.
     
  12. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    I didn't say that you pay CGT on the granting of a life interest, but that it is a CGT event.

    Granting a life interest is actually creating a trust over the asset in question. It would be CGT event E1. The main residence exemption could be used so that the event is exempt - when the life interest is granted. But if you sell to a trustee and the trustee grants a life interest there will be 2 CGT events - the transfer to the trust and the creation of an additional trust.
     
  13. Cactus

    Cactus Well-Known Member

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    Apologies for misquoting my understanding was same.
     
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  14. tommo c

    tommo c Well-Known Member

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    What about if the property was initially an investment? Does that property then become subject to CGT on the portion of time it was an investment?

    e.g. purchase an investment property, rent it out for 10 years, then decide to move and live in that investment property (for the above 6 year rule), doesn't the 10 years worth of capital works/depreciation then needs to be subtracted from the cost base to determine CGT?
     
  15. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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  16. Gypsyblood

    Gypsyblood Well-Known Member

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    Terry express order from me once you write it! :D
     
  17. MyPropertyPro

    MyPropertyPro REBAA Buyer's Agents Sutherland Shire & Surrounds Business Member

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    @Terry_w is this the case? I can't imagine there is no stamp duty if you sell a property owned by a trust to a real person. To my knowledge this is simply not how it works.

    Obviously CGT is a different scenario.
     
  18. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    In some states it is possible - Vic and WA I believe under certain conditions.
     
  19. MyPropertyPro

    MyPropertyPro REBAA Buyer's Agents Sutherland Shire & Surrounds Business Member

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    I know this was the case under certain circumstances in Victoria when transferring between related parties (was called "transfer by way of love and affection") to avoid stamp duty but this has only recently been removed as provision. Unsure of WA.
     
  20. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    In Vic there was no love or affection needed. Transfers at full market value were exempt when between spouses - but this is being removed shortly sadly.

    but this is totally to transfer from a trustee to a beneficiary.

    For WA i have written a tip on it.
    Legal Tip 54: Stamp Duty Transferring a property from a trustee to a Beneficiary in WA https://propertychat.com.au/communi...y-from-a-trustee-to-a-beneficiary-in-wa.2684/
     

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