Restructure

[wxc]

Hi

Would like anybody's opinion on this.

My sister has a mortgage free house, she is going to living with her boy friend for now, but want to getting a new house next year.
Her friend said she would be better to sell the house to a LTC and use those fund on the house later.

She said she spoke to a mortgage broker. And the broker tell her to be becareful, he think the fund she extracted now and use for the new house later would be not deductible.
And he suggested to just rent the house now, and once they find the new house then do the restructure at the same time.

He also asked her to seek other advice to confirm if he is correct.

I am thinking there are many experienced investors and professionals could have done the restructuring before, and share their opinions.

Thank you very much.

[Cpt707]

...ensure your sister protects her "
asset" of the mortgage free house from any future relationship problems......A Trust set up may be the way...

[Anthonyacat]

She said she spoke to a mortgage broker. And the broker tell her to be becareful, he think the fund she extracted now and use for the new house later would be not deductible.

She either misunderstood, or the broker has no idea.

Assuming the restructure is done correctly, the borrowings are deductible to the LTC because the borrowing is incurred in order to generate assessable income. The whole point of a restructure is that you pull the funds out for private purposes; doesn't matter what those private purposes are.

[wxc]

Hi Anthonyacat

Thanks for the reply.
I also doing some research on restructuring for her. What do you mean by "Assuming the restructure is done correctly"? can you explain a little bit more please?
Isn't it doing like the following steps?

1. Apply (Setup) for a Company, elected it to be a LTC
2. Ask a mortgage broker to find a lender. Borrow 80% of the market value (find an independent valuer) of the property
3. Change ownership through a lawyer.

Am I missing something?


Thank you

[John the builder]

Can I marry your sister? Tell her to ditch the other bloke

[Rosco]

Hi

Would like anybody's opinion on this.

My sister has a mortgage free house, she is going to living with her boy friend for now, but want to getting a new house next year.
Her friend said she would be better to sell the house to a LTC and use those fund on the house later.

She said she spoke to a mortgage broker. And the broker tell her to be becareful, he think the fund she extracted now and use for the new house later would be not deductible.
And he suggested to just rent the house now, and once they find the new house then do the restructure at the same time.

He also asked her to seek other advice to confirm if he is correct.

I am thinking there are many experienced investors and professionals could have done the restructuring before, and share their opinions.

Thank you very much.

Hi wxc,

1) Get some good legal advice on the relationship property part.

2) restructure - it all depends on the circumstances, and there is no perfect answer to this
- Trust could be more appropriate depending on your sister risk level
- I presume you mean new personal house? If it is another rental, then interest will be deductible anyway!
- Main question would be, do you do the restructure now or wait until looking at new personal house. Its a matter of looking at the costs vs benefits, and most likely there is no benefit from doing it now, but there could be extra costs.

3) assuming it is done correctly. It can be done wrong, and I would always suggest getting property advice about the entity to use, the whole restructure and the costs vs benefits.
For example, you would normally borrow 100%, not 80%

Ross

[PTILoveYou]

I think at this point, keeping your sister's existing home clean away from the BF is the most paramount.

Much more important than some tax savings.

Best to speak to a trust specialist who knows a bit of taxation too, or an accountant straight after.

[wxc]

Hi wxc,

1) Get some good legal advice on the relationship property part.

2) restructure - it all depends on the circumstances, and there is no perfect answer to this
- Trust could be more appropriate depending on your sister risk level
- I presume you mean new personal house? If it is another rental, then interest will be deductible anyway!
- Main question would be, do you do the restructure now or wait until looking at new personal house. Its a matter of looking at the costs vs benefits, and most likely there is no benefit from doing it now, but there could be extra costs.

3) assuming it is done correctly. It can be done wrong, and I would always suggest getting property advice about the entity to use, the whole restructure and the costs vs benefits.
For example, you would normally borrow 100%, not 80%

Ross

Hi Ross
Thanks for the reply.
I will talk to her about the trust. Or perhaps a "contracting out" agreement of the personal assets/debts would do?

"- I presume you mean new personal house? If it is another rental, then interest will be deductible anyway!"
Do you mean the fund from the sale to the LTC for private use (other than purchasing a new rental) is not deductible?

"Its a matter of looking at the costs vs benefits, and most likely there is no benefit from doing it now,"
I think I understand this part, eg. loan interset from bank will be higher than saving sitting in the bank - tax.

But for this "but there could be extra costs."
what do you mean by extra costs?
Do you mean the "Mortgage Interest" > "(Saving - Tax) + any expensive claimed from the rental"
or something else?

Thank you very much.

wxc

[Rosco]

Hi wxc,

1) I presume you mean new personal house. If you were going to buy a rental with the money, then would probably be no point doing a restructure, as the new borrowing would be deductible anyway.

If the funds are used for a new personal home, then a restructure is needed to improve the interest deductibility.

2) but there could be extra costs
- if do the restructure now, then could be higher accounting costs, annual company fee cost, cost to set up LTC etc
- so if no benefit in doing restructure now, but some extra costs, then would most likely make sense to delay until needed.

Ross

[wxc]

Thanks guys, thanks for all you comments.
Much appreciated.
I will have to discuss with my sister further.