How to live in a property & still be deemed as an Invest

[hannah]

At first let me say that I am a newbie and this is my first post in this forum. I am now seriously thinking of buying a property for myself to move in and this is going to be my first property. I am currently looking into a property of $340000 value (3 bed room). I am on a $60000 salary bracket. In my current situation I will move in and along with I will have 2-3 more rent paying flatmates.
My queries are as follows:
1. How should I structure the buying process (in the form of Trust, LAQC etc.) so that this property I intend to buy can be deemed as an investment buy? I need to reap all the tax benefits.
2. How should I structure my mortgage?
3. Which Bank/Lending institution I should go with?
4. How and what should I negotiate with Bank/Lending Institution?

I know this forum is filled with a lot of wise, wealthy and experienced people. Hope to receive some good advice and please wish me all the luck.

Kind regards

[cat]

Hi Hannah

Welcome to the forum!

This post will give you some background reading until the more onto-it folks reply

http://www.propertytalk.co.nz/module...opic&t=566

Cat

[murray-spi-investments]

Hi Hannah welcolme to Propertytalk

You CANNOT structure the property to deem it an investment. Assuming
this is four bedrooms and you have three flatmates then you can claim 3/4 of all costs and interest (or so, depends on size of rooms)

I suggest private ownership so if in due course you buy yourself another house to live in then you can transfer this one to an laqc then at a higher price while taking advantage of putting all the loans against it.

if is is your first house call your current bank for a chat or try a mortgage broker.

[hannah]

So should I call IRD and get an explanation from them aforehand or is there some property consultants here who I can call on in this regard. My problem is that because this is my first property, I would like to live in and still wanting to get the tax benefits.

Also can someone suggest a suitable Mortgage structure for me? Sorry folks, I am just a newbie..

Many thanks in advance

[murray-spi-investments]

I suggest you call me or come to my office if you are in Auckland

[cat]

Sue Tierney from Mortgages By Design will also be very helpful.

[CJ]

See this press relsease from the IRD:

http://www.ird.govt.nz/mediareleases/2004/190704.html

[hannah]

thanks for that info CJ. I think everyone should know about it.

Cheers

[murray-spi-investments]

Good post CJ and very topical, I have had people asking me the same question and my response is the same as the IRD , that it is not possible and is clearly aviodance to my mind. What it does highlight is that some "investment advisors" will sell you a pup , take your money and the consequences rest with you. If you live in the house then it is a personal expence (home office aside). I have taken the liberty of inserting the full media release to ensure everyone reads it.

"Tax avoidance involving LAQCs and the family home

Media release 19 July 2004
Inland Revenue has noted with concern that a group of taxpayers are selling their private home to a loss attributing qualifying company (LAQC), and then claiming tax deductions.

Selling your private home to a LAQC in order to claim a tax deduction for what are really private expenses, may be tax avoidance in some cases, says Margaret Cotton, of Inland Revenue.

"Unfortunately, some investment advisors are telling their customers that they can claim a tax deduction by selling their residential property to a loss attributing qualifying company, renting the property back from that company and claiming a tax loss," said Ms Cotton, National Manager of Technical Standards.

"Inland Revenue considers that such arrangements will often be tax avoidance for the purposes of income tax," she said.

Ms Cotton explained that Inland Revenue is currently considering several cases where a LAQC has been used to buy a residential property that the shareholders will rent as their residence. Even where a market rental is paid to the LAQC, a tax loss can still be generated to the advantage of the shareholders.

Where tax avoidance is proven, the taxpayer must pay the tax avoided as well as a penalty of 100% of the tax avoided. Use of money interest will also apply.

Ms Cotton says that if taxpayers are concerned about their position in respect of these arrangements then they should contact their local Inland Revenue office or seek professional advice.

ENDS"

[CJ]

Selling your private home to a LAQC in order to claim a tax deduction for what are really private expenses, may be tax avoidance in some cases, says Margaret Cotton, of Inland Revenue.

I dont know why the IRD dont just come out and say this "is" tax avoidance. None of this "may" stuff.

Ms Cotton explained that Inland Revenue is currently considering several cases where a LAQC has been used to buy a residential property that the shareholders will rent as their residence.

I am not so sure about this one and I believe it goes on the facts. However, I am not sure it is worth the arguement with the IRD. Just structure your finance properly (ie as little as possible on PPOR and 100% I/O on rental till mortgage on PPOR is paid off).

[hannah]

Just structure your finance properly (ie as little as possible on PPOR and 100% I/O on rental till mortgage on PPOR is paid off).

I am a new kid on the block..
what is PPOR and 100% I/O..
many thanks

[muppet]

Hi Hannah

PPOR = Principal Place of Residence. (I have edited it)

100% I/O = 100% finance Interest Only Loan.

Regards

[RentMaster]

What it does highlight is that some "investment advisors" will sell you a pup , take your money and the consequences rest with you.

Out of a matter of interest, if the investment advisor is giving bad advice, and the client gets stung by the IRD, what responsibility if any does the investment advisor have?

[murray-spi-investments]

unfortunatley the answer has to be - it depends. Will range all the way from being held liable to no liability at all. Out come depends on the contract (if any) the legal structure of the advisors company, use of warnings in literature, good lawyers etc.

[GreatPig]

PPOR = Private Place of Residence.

Or "Principal" Place of Residence.

GP