Each week, financial adviser and international best-selling author Noel Whittaker answers your questions. firstname.lastname@example.org.
We've lost an income, so must reduce our investment property loan repayments. The broker recommended a line of credit for our $439,000 loan. It is now down to $371,500 and the rate is 6.29 per cent - we pay $5000, which we'll now need to halve. We don't plan to purchase other properties at this stage. Is this the best loan for us?
I think your existing arrangement is fine because it gives you maximum flexibility. Just make sure you at least cover the interest, if at all possible. This would be $1950 a month.
I have an investment property that is rented at the moment, and have a town planning permit to build three townhouses on the land. If I demolish the existing house, and build two - one to rent and one to live in - can I claim the interest on the investment loan for the period of the construction, while I don't receive any income from the property?
Based on the decision in Steele's case you can claim two-thirds of the interest - one-third of the development will be for private purposes. Keep your accountant closely involved and stay focused on doing the development for rental purposes.
Is it really worthwhile claiming property depreciation to maximise tax deductions? You go to a lot of expense and trouble for a quantity surveyor to check and record every depreciable item to reduce tax, and when you sell the property the tax office will claim back all those deductions. I sold my investment apartment after 10 years of renting and negative gearing, without any capital appreciation, and the tax office took back all 10 years' depreciation when I sold it - I lost money. Property seminar organisers never tell the real story.
A property depreciation report is a once-only expense, costs about $550, and is fully tax deductible. I think it is a great investment, particularly as it almost certainly highlights a range of tax deductions you would never think of yourself and also saves on accounting fees. I agree that many of the deductions are clawed back when you sell, but often this occurs after you retire when you are in a much lower tax bracket.
My husband and I purchased a block of land three years ago, with an intention to build. We have now decided to sell it as we have not been able to sell our current property. We read the advice you recently gave to another couple in a similar situation and wondered if we could claim back the interest, rates etc we have paid while holding onto the block. If we sell our current home and then sell the land will the same apply?
Provided the property was bought after August 20, 1991, you can claim expenditure such as rates, maintenance and interest. The timing of the sale of your home is not relevant.
We recently received a phone call from a Gold Coast-based company trying to talk us into going through them to build an investment property on a block of land they claim is located in a growth area. They say we can save stamp duty by using a building contract instead of buying a completed house and also claim we can pay off their house loan faster by letting the interest on the investment loan capitalise while we use all the income from the new property to pay off our home loan. What are your views?
I would be extremely wary of any organisation that calls about investment, especially if they are based on the Gold Coast. This practice has come to the notice of ASIC as well as the Office of Fair Trading and there are moves afoot to change the regulation to give better protection to investors. The Tax Office has also made a statement that they do not approve of interest being capitalised and have announced their intention to take action against investors who are doing it.
Guarantor role could provide best benefits
Our son intends to study at uni in the city. What would be the best strategy for us with regards to accommodation for him? Should we look at paying rent for him in a shared unit or house, or is it worthwhile buying a two-bedroom unit close to uni and paying his half of the rent using an interest-only loan?
I believe property should be purchased on its merits and not simply because you are trying to provide accommodation for a family member. However, if you can find a bargain-priced unit you could talk to your bank and go guarantor so your son could buy the unit in his own name. He would then become eligible for the first home owner's grant and reduced stamp duty if applicable. This would prevent a capital gains tax liability if you bought the unit with him as a joint owner and then wanted to transfer your share to him in the future.