Home equity loan for $50,000 to invest in a quality share trust

By Noel Whittaker
April 26, 2006

If I sell an investment property and roll the proceeds into my super fund, do I receive any relief from capital gains tax?

It doesn't work like that, because you cannot roll the proceeds of an investment into your super fund. Once the sale is made, you will incur a CGT liability but this could be reduced if you make a contribution to super and claim part of the contribution as a tax deduction. To do this, you must be eligible to contribute to super and also must have no employer making contributions for you.

Six years ago my sister's partner left her and their two children. To allow my sister to stay in her home with the children, I bought out her partner's interest. The bank required that I be added to the title as my sister was not working. I meet half the monthly repayments. If my sister sells her property, am I required to pay CGT? I do not consider this is an investment property as I have never received any rent and at the time of the arrangement had confirmed with my sister that I was just assisting with her repayments and the home was her residence.

Unfortunately, the fact of the matter is that you are a part-owner of the property and as such will be liable for CGT when it is sold.

We have owned an investment property for two years while living in rented accommodation ourselves. The price was $300,000 and our debt is $265,000. We want to buy our own home. We contribute $270 a week to the loan and the tenants pay us $220 a week. Our rent is $280 a week. The mortgage is a standard variable one at 7.2 per cent. Should we refinance or sell and cut our losses? We also have business debts of about $60,000.

On the figures supplied, your net rents would be about $9000 a year and the interest on your loan would be $19,000 a year, leaving you with a shortfall of $10,000 a year. This shortfall is tax-deductible but will not create much of a tax saving for you as you appear to be in the 30 per cent tax bracket. Unless you believe the property will appreciate by more than $10,000 a year it may be better to cut your losses and rid yourself of the debt burden.

I am 29 and in the process of buying my first home. Am I better off paying an extra $50 a week in superannuation, paying it off my home loan instead or putting $25 a week into each? Where would my money work best?

You are too young to be placing money into super where it will be inaccessible for at least 30 years and paying it off the home loan will earn you about 7 per cent annually. A better strategy may be to talk to an adviser about a home equity loan for $50,000 to invest in a quality share trust. The interest will be a tax-deductible $65 a week and you will have put an extra $50,000 of assets to work for you.

We are considering spending $4000 to $7000 on our unit in Sydney, with the goal of reducing noise. The unit is on a busy street and the noise from trucks and cars can be unbearable. We want to know if in your opinion we will be overcapitalising or will we be able to add this to the sale price of our property when we are ready to sell?

In view of the relatively small cost involved, and the benefits the work will bring to your lifestyle, I suggest you go ahead with the plan. When you do come to sell your unit it will then be more attractive than neighbouring ones.

Noel Whittaker is an independent adviser. Write to Your Questions, Money, GPO Box 2571, Qld 4000, or visit moneymanager.smh.com.au/sitewide/askanexpert.html.