Mum wants to buy me a house, as the bank won't lend me the money, the bank has offered her 200k for a 'holiday house' as she owns another property. I would like to live in it and pay all costs, neither of us will make any tax deductions for it. She has offered to transfer it into my name once the mortgage is paid off. Is there anyway to avoid my Mum being taxed on the money I pay off the mortgage?
Paying off Mums Holiday House Mortgage
LBadPanda on 15/01/2021 - 22:38
Comments
I agree, I've spoken to a couple of accountants and so far heard its not possible and conversely that it is possible. Unfortunatly it might be quite an uncommon situation, hopefully someone here has gone through something similar.
I'd be in the no you cant .. if you can only give 10k to your kids as a 'gift' I'd say a house is a touch more valuable.
I agree, the house itself will incur stamp duty and capital gains on transfer to me.
I was looking for a way to avoid Mum paying tax on the money I pay off the mortgage. As you mentioned I can pay up to 10k per year (30k over 5 years) but it would be good to be able to transfer more. Perhaps as a loan to her that she returns with transfer of the house?
I was looking for a way to avoid Mum paying tax on the money I pay off the mortgage. As you mentioned I can pay up to 10k per year (30k over 5 years).
What tax are you referring to? You can give as much money to your mum as you want without having to pay any extra tax.
@bobbified: An accountant told me she would be taxed on the money I paid off the mortgage. I just got off the phone with ATO and they don't think I will be taxed if I'm paying it off the mortgage directly.
An accountant told me she would be taxed on the money I paid off the mortgage.
No she wouldn't. She would only be taxed on the money if you gave it to her specifically as "rent" because she would then have to declare rent as income.
But there's nothing stopping you from giving your mum money for no reason and she won't have to pay any tax on it. She can do whatever she wants with it, including paying off the mortgage.
@BadPanda: You may want to check when you pay CGT some point in the future, as it isn’t your mum’s primary residence, even when it becomes an inheritance.
An accountant told me she would be taxed on the money I paid off the mortgage.
This person may have to go back to uni for a refresher course.
https://community.ato.gov.au/t5/forums/searchpage/tab/messag…
If mum owns the house and you are the tenant then surely the house would be an investment property for your mum. Therefore any 'rent' you pay her would be offset against the cost of the mortgage. Been a while since we've owned an investment home though so the rules might have changed? Also, make sure she updates her will to include that YOU are to receive the home in the event of her death. I'm sure you'd hate to get close to paying off the mortgage debt only to have your mum pass on and all the scrounging relatives get their hands on your property. :)
Good tip.
Something something principal place or residence…
Stamp duty however..Stamp duty on purchase, when she sells to me its my first home so FHO. Its not primary its an investment yet the bank wants to call it a 'holiday home' even though the bank understands exactlly what we are doing with it.
So who cares how the bank sees it? It's the tax nazis you have to appease. So maybe your mum started out with the intention of making it holiday home but situations changes so she decided to rent it out instead?
I'm not sure but, if the bank sees my name on the legals done by conveyer I think they will want me on the loan application. Otherwise I would just pay the conveyer to put all our names on the title.
I think the bank wants it to be a holiday home I stay in and dont pay rent on.
Maybe your mum can pay the mortgage and you can pay her other expenses to the equivilent value
What state are you in?
You may have to pay stamp duty when transferring the house.Interesting question though!
Edit - dasher had also mentioned principle place of residence, this will absolutely kill you if your mum isn't claiming the second house as her main residence
Might be possible but it's a terrible idea, you're going to get hit with stamp duty when you try and transfer the property depending on your state. You also won't get the capital gains exemption for being a PPOR so your mum might get hit with a big tax bill when she transfers the place to you.
You might be better off speaking to a mortgage broker rather than an accountant, your Mum might be able to guarantee a loan taken out in your name which would avoid messy tax issues.
Thanks for your reply unfortunatly my parents cant guarantee income and she doesn't want to use the equity in her home.
So… on the $200K the Bank will advance for a Holiday Home, what sort of Loan is that then?
Is the only security against the Holiday Home Title and what is the Term and Rate?
I think its an investment loan and the only security is my deposit and the future property. I'm not sure why the bank wants to call it a holiday home, perhaps the name 'holiday home' has to do with the banker giving them a lower rate?
You might be better off speaking to a mortgage broker
Ahhh yes, the magical mortgage broker path… The ones that fiddles the numbers until you get a loan you can't really afford.
Ask your accountant about buying the property under Tenant in Common which will include both your names on Title. I think there are tax benefits even if you are only holding 1% and your mum holding 99% of the property. One of them I think is maybe it can be treated as your principle home so you don't pay land tax (assuming the land value is more than 400k). Again I'm not quite sure but heard someone had done this as there were benefits although their financial position was likely to be a bit different to yours. Worth asking the question anyway.
Perfect I have an appointment with my accountant I will ask her, thanks.
You still pay pro rata, your mum would pay 99% of the property land tax, CGT etc. You also pay 99% stamp duty when transferring the house over to you.
You can do it this way, just max your % of ownership based on how much you can afford.
So you haven't got enough equity or income for the bank to lend you money.
Your Mum hasn't got the money on hand and needs to borrow it.
I'm assuming the bank has also rejected her going guarantor on your loan.
I'd wait and and build up more cash reserves.
Thanks for your advice
OP, you could provide your mother with an interest-free family loan. Work out the size of the loan, write up a contract, sign it and keep it safe.
The contract should include the usual details of each party, the amount, the start date, the estimated end date, instalment dates and anything else that may help show that this is a legitimate loan.
Ive heard there needs to be a minimum of .3% interest do you know if this is correct?
No. People can legally lend other people any amount they want without charging interest.
This definitely won’t end in tears
Stamp duty will be the killer here. Maybe get yourself on the title initially as there are certain situations where you can transfer without stamp duty later BUT it depends on your state and you really should get legal advice before you do anything. Forget the bank, it’s a legal matter.
I mention the legal advice aspect because I had to transfer my house from solely me to 50/50 with my wife however I had some inexpensive legal advice to help do this.
Guarantor mate, just get a loan like that.
Can't use a guarantor to gurantee income and my Mum doesn't want to use the equity in her home.
I've also been told banks have started only doing domestic co-borrowers and stopped using parents as Guarantors so everything is 'at arms length'.
https://www.revenue.nsw.gov.au/taxes-duties-levies-royalties…
If you have received property from a deceased estate “in accordance with the terms of the will” you will pay transfer duty at a concessional rate of $50.
All I have to do is wait for someone to die :) Thanks for your advice. My biggest concern was the money I pay off the mortgage being seen as income for my Mum as she is still working.
How would it be income if it is being used to pay the mortgage?
Rent $20k
Cost of mortgage etc $20kZero tax to pay.
What house for you plan to buy with $200k though?
I'm also using my deposit and not living in a city
@BadPanda: If you have the deposit, why can't you get a loan for $200k? You obviously have a job, or you wouldn't be able to pay your mum.
@brendanm: Freelance with dependants, I was pre approved for a loan two years ago but an opportunity presented itself so I traveled (for work) instead. As this last year has not been as profitable and they said I can no longer service the loan. I still have my deposit because ozbargain :) and I can always fall back on my trade if I need too and Mum wants to help out.
There are alot of variables - However I am in the camp of your mum will need to pay tax on the income that you provide.
The house will be in your mother's name and she is gaining the benefit from you. In the comment above relating to the 20k mortgage per year, and you pay 20k per year, so that cancels each other out - Is not quite right.
Only the tax-deductible part of the mortgage payment would be able to be claimed. So if you had a principal and interest type arrange, the $20k would be made up, partly of non-deductible debt.
As it becomes income producing, your mother is then liable for CGT in the event that the property is sold (Even if it is sold to you, it will also trigger a stamp duty event)
Further, depending on the state, there could be land tax that is now payable, as your mother has a place outside of her PPOR.
Then there are future implications about if your mother wants to borrow more money in the future - Her capacity to borrow will be hampered
Perhaps she wants to claim some sort of government benefit - This would be counted as an asset to her
There are also lessor risks - Such as if she was sued or became bankrupt, then your house could be at risk. Similary the use of a will could negate some of these issues, but could also be challenged by other siblings relatives
Perhaps seek advice from multiple people, as there are tax and legal consequences that could occur, so you need to find people that can advise on both.
Lots of good advice here.
Ive spoken to the ATO who think there is no tax due due to the fact I will be paying the mortgage directly.
No problem - So if I get my tenant to pay my mortgage direct to the bank instead of me - Then no tax payable?
If it worked that way, everyone would be doing it. :)
I'm not sure but perhaps they might have some claim to ownership if they pay part of the mortgage instead of rent? Wouldn't you also lose deductions? Ive never owned a house so I don't know.
"There are also lessor risks - Such as if she was sued or became bankrupt, then your house could be at risk. Similary the use of a will could negate some of these issues, but could also be challenged by other siblings relatives"
This is a really good point I hadn't thought of.
Ask your mum's accountant is the best bet.