its the kind of thing to speak to a tax accountant about before you do anything. The rules on tax keep changing...., and if you do go ahead, then the accountants fees are deductible..

the reason for my comment is that the tax law is something like, for any deduction offset against income, the deduction has to be directly related to the generation of the income, eg borrowing money for a house to live in can't be offset against income generated by another property. but what would i know... that's where professional advice keeps you out of trouble..

Tax office works on the purpose of the funds, not depending on if it was borrowed against an investment property or a place of residence.

If you are purchasing a place of residence, the borrowing is not tax deductible.
The only option is to sale the property, use all proceeds to purchase the place of residence borrowing as little as possible then use the equity in this property to purchase a new investment property borrowing 100% plus all fees and charges making the investment property much more tax effective.

Realistically, although I have clients wanting to do this all the time, I am personally against it. By the time you allow for the initial selling cost (2.5% for the real estate agent, sometimes 3%) and the stamp duty and fees and charges associated with the purchase of the 2 new properties, it is highly unlikely that the tax benefits would make up for the losses.

You are therefore better off keeping it as an investment property, you will get taxed on the income generated but I would rather be positively geared than negatively geared any days.

That is the beauty of the offset accounts where you can offset your mortgage to reduce interest payments but retain the capacity to draw down all the funds at your convenience.

pm me if you want to discuss further (got some great rates too )

WELL can I take out an investment loan on the new house, call it an investment property, live in it for under seven years while i do it up whilst still having my old house as a principal place of residence? (even though there are renters in it?)

myusernam said..
WELL can I take out an investment loan on the new house, call it an investment property, live in it for under seven years while i do it up whilst still having my old house as a principal place of residence? (even though there are renters in it?)

Sure. No problem. Unless you want to claim the interest and costs on the new place against your tax.

You can have your old place as your principal place of residence, but what's that going to do for you? You are going to pay interest on the new place, which is not deductible, and tax on the income from the old place (minus your costs of course).

The tax office seem to look at what your intent was when purchasing places, even if reality doesn't work out the same, albeit they are on the more pessimistic side. If you 'forget' to rent out an investment property I doubt they will be understanding.

Once you pay off a place, they will not let you deduct the interest for any part of that loan that has already been paid off.

As with all things tax related, you can get away with anything unless/until you are audited, so don't take too many opinions as fact without checking it out yourself.

Stanos said..
don't waste your time looking for the answer on this forum, seek professional advice. Although what 'sotired' said is spot on - you can do anything you like until you get audited

This^^^

Also there could be CGT applied. The ATO want their pound of flesh

Like everyone else says get professional advice. I'd suggest going to a property investment forum like somersoft to get opinions on good accountants that specialise in residential property.

I don't see why you couldn't refinance your house now, borrowing up to your maximum say 80% then putting the extra cash into a mortgage offset account. Then in future when you are ready to move, you have all this cash ready to buy your new place, and a decent sized loan on your investment property. If the tax man ever asks, the reason for you refinancing was to get a better deal, and with Australia's unemployment figures hitting 6% you wanted to have some extra cash in the offset account, in case either you or your wife lost your job. Hard for ATO to dispute that.

If you were to refinance and then go house shopping right away, then ATO might have reason to be suspicious about your motives.

Tip: don't use commbanks offset account because they use the same acct number as the home loan which makes it impossible for anyone to discern whether your cash suits in the loan acct or the offset acct.

One last thing: I'd set up the loan as interest only when you refinance. Otherwise you'll still have to pay back principal while youre living in the house, which decrease the value of the loan. I presume when you say you own it, you mean outright?

Mark _australia said..
You poor buggers such hard decisions

Watch out for Macro's reverse engineered Bitcoin it will cut you bourgeois quasi-rich capitalists to the bone.

im just waiting for him to list the e-catamaran and the oil pipeline to the other side of the world and Im all over it with my personal currency.
Thanks all. Will do some more investigating.
BTW> I think seabreeze is awesome to be able to ask questions like this. Such a diverse group of people, there are bound to be knowledgeable people out there on any subject. (except maybe the ability of a skyscraper to withstand fire :( )

Mark _australia said..
You poor buggers such hard decisions

I was going to add to this thread based on my experience and have a good gripe about the current tax system...

...then I realised basically how sad it is for me to be complaining about my 'first-world' issues.

Captn Scooby said..

I don't see why you couldn't refinance your house now, borrowing up to your maximum say 80% then putting the extra cash into a mortgage offset account. Then in future when you are ready to move, you have all this cash ready to buy your new place, and a decent sized loan on your investment property. If the tax man ever asks, the reason for you refinancing was to get a better deal, and with Australia's unemployment figures hitting 6% you wanted to have some extra cash in the offset account, in case either you or your wife lost your job. Hard for ATO to dispute that.

If you were to refinance and then go house shopping right away, then ATO might have reason to be suspicious about your motives.

Tip: don't use commbanks offset account because they use the same acct number as the home loan which makes it impossible for anyone to discern whether your cash suits in the loan acct or the offset acct.

Sorry but none of these points are correct.