Turning PPOR into IP and buying new PPOR

Discussion in 'Accounting & Tax' started by SunnyBoy, 20th Sep, 2021.

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  1. SunnyBoy

    SunnyBoy New Member

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    Hi all,

    Been reading through a few threads which has been very insighful.

    Currently have a PPOR in Melbourne that I am considering turning into an IP and using the equity alongside savings in the offset to upgrade to a new PPOR.

    The house is owned solely in my name prior to getting married and currently valued around the $1.2-1.3m mark. Home loan balance ~$525k. Savings in offset ~$350k

    What I want to figure out is the optimal strategy to structure the loans/ownership from a tax perspective. I've read about potentially selling to my spouse who takes out a loan to increase interest deductability, would this be the most effective path?

    Cheers
     
  2. Terry_w

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

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    You would need some specific advice. See my tax and legal tips on this for starters.
     
  3. Ross Forrester

    Ross Forrester Well-Known Member

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    Also consider getting evidence of the market value of the main residence when it becomes a rental property plus a quantity surveyors report.

    Just one of the many things to consider.
     
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  4. Will Callaghan

    Will Callaghan Well-Known Member

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    Sounds like you need a good accountant.

    One thing that pops to mind is Stamp Duty.
    I think your spouse may have to pay a fair chunk of Duty to the government if you sell to her.

    If that’s the case you could lose any savings benefits you were hoping to get.

    Now, the moving to IP...

    The ATO will allow you to convert your former PPoR to an IP for 6-years and will not impose any Capital Gains taxes.

    You just have to do 2 things...

    1. Move back in before the 6-year mark

    2. Don’t go and buy another PPoR.
    Do that and your Capital Gains Tax goose is cooked.
    The ATO will (almost immediately) consider your former PPoR as genuine IP.

    If you choose to rent it out for the 6-year period you can also claim tax deductions through a Tax Depreciation Report too.

    Hope that helps - but definitely ask a clever Accountnat too

    W
     
  5. craigc

    craigc Well-Known Member

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    Note this is incorrect as owner (likely) will have the choice of property to use Main Residence exemption which is only nominated and calculated at the time of sale (or other CGT trigger event).

    See Terry’s tax tips.

    Also good professional advice is needed as other facts not advised by OP could also impact the calculations.
     
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  6. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Another strategy is the sale of the asset to a unit trust, regearing the place fully - comes at cost of course, and mot many lenders will consider a loan where the borrowers are the unit holders and the trustee provides a security guarantee.

    Not a tax guy btw

    ta
    rolf