$40K,$80K,$120K,$180K
Sophie
should
speak to
her parents
about the
possibility
of a family
pledge
not tax deductible) and the loan on the (now) investment
property to be as high as possible (the interest becomes
tax deductible).
- Ifsheusedaninterest-onlyloanwithanoffset
account, she can withdraw the funds from the offset
account on the (now) investment property and use them
to help fund the new home. By doing so, she reinstates
theoriginalbalanceoftheloan(nowthatitisnotbeing
offset), maximising the tax-deductible interest and
reducingtheamountshehastoborrowforthenew
home.Ifshehadusedaprincipalandinterestloanand
hadbeenpayingextramoneyofftheloan,theequity
would now be “trapped” in the investment property,
meaningthatshewouldhavetotakeonahigherhome
loan. She cannot just refinance the loan back up to the
original balance of the loan and use the extra funds for
thenewhomeandclaimataxdeduction,asthiswould
be borrowing for personal (non-investment) purposes. - However, in using this strategy, she needs to be
verydisciplinedinmanaginghercashflowasthefunds
in the offset account can be easily accessed. Also, due
to recent restrictions placed on banks, interest-only
borrowing is harder to come by.
3
First home buyer super option
Sheshouldalsolooktoutilisethenewfirsthome
buyersuperoptionbycontributing$10,000ayearto
super. Starting on July 1, she can allocate $10,000 towards
afirsthomedeposit(maximumof$15,000ayear).When
shecontributesthe$10,000shegainsataxdeduction.
Themoneyistaxedinthefundat15%andthereisa
withdrawal tax, which means that after three years she
canwithdraw$25,780plusthereturnontheinvestment
(which is now based at 4.78%). Note that the total cap
is $30,000.
Variousstatesmayhavefirsthomebuyergrants.
Recently NSW announced that, from July 1, 2017, it will
scrapstampdutyforfirst-homebuyersonexistingand
newhomescostingupto$650,000.Therewillalsobe
stamp duty discounts for homes up to $800,000. These
changes are expected to provide savings of up to $24,740
for first-home buyers.
The NSW government will also abolish the stamp
dutychargedonlendersmortgageinsurance,which
will save around $2900 on an $800,000 property.
Sophie should speak to her parents about the possi-
bility of a family pledge, if required, to help with her
depositsandpossiblyreducetheneedformortgage
insurance when applying for a loan. Her parents, as
guarantor, can use their home’s equity to guarantee
part of their family member's loan.4
Other things Sophie should do
- Haveabudget.Itmaybeabletoenhanceher
position by determining what her net income is and
what her actual expenses are. There are many budget
planners and apps that Sophie could use to work out
how best to manage her cash flow. - Pay off credit cards every month.
- Move savings to a high-yielding online account that
encourages regular top-ups. - Combine super into one fund that has good invest-
ment options and insurance. - Ensure life, disability and income protection insur-
ances are sufficient. - Prepare a will, power of attorney and enduring
guardianship to protect herself and her estate. - Ensure that her super fund has her tax file number.
If no TFN is provided, then the super guarantee and
concessional contributions are taxed at 49% instead of
15%.SimplyensuringherfundhasaTFNonfileresults
in a massive saving.
Sophie should consider the many aspects of her
financial affairs as a package. She should explore the
full range of opportunities available, such as high-
er-yielding savings accounts, government funding for
first-homebuyers,gettingagoodmortgageplanand
making sure her most important assets – her income-earn-
ingabilityandhealth–arecovered.
Laura Menschik is director at WLM Financial. She is a
certified financial planner and SMSF specialist adviser.