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1 |
Rental property with bank loan secured against principal home
A customer purchases a $200,000 rental property and finances the purchase with a loan from their bank. The bank loan is secured only against their principal home, which is an exempt asset. None of the liability can reduce the value of the rental property.
The assessable value of the rental property is therefore $200,000.
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2 |
Rental property with bank loan secured against another assessable property
A customer purchases a $300,000 rental property and finances the purchase with a loan from their bank. The $300,000 bank loan is secured against their other freehold rental property, which is worth $200,000, and the new rental property.
Loan liability calculation
(Value of secured loan x value of assessable property) divided by (value of new assessable property + value of existing property).
$300,000 x $300,000
($300,000 + $200,000)
The amount of the loan to be deducted as a liability= $180,000
The assessable value of the new rental property
$300,000 - $180,000 = $120,000
Note: the existing rental property now also has a liability (calculated using the same apportionment calculation).
$300,000 x $200,000
($300,000 + $200,000)
The amount of the loan to be deducted as a liability= $120,000
The assessable value of the existing rental property
$200,000 - $120,000 = $80,000
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3 |
Example one of rental property with bank loan secured against principal home and rental property
A customer purchases a $300,000 rental property and finances the purchase with a loan from their bank. The $300,000 bank loan is secured against their principal home, which is an exempt asset (worth $200,000), and the rental property.
Loan liability calculation
(Value of secured loan x value of assessable property) divided by (value of assessable property + value of exempt property).
$300,000 x $300,000
($300,000 + $200,000)
The amount of the loan to be deducted as a liability= $180,000
The assessable value of the rental property
$300,000 - $180,000 = $120,000
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4 |
Example two of rental property with bank loan secured against principal home and rental property
A customer has a principal residence worth $400,000 with an existing loan of $100,000 prior to purchasing a $600,000 rental property. Further finance is sourced with a loan from their bank of $300,000, secured by both properties. The net value of the principal home ($300,000) is used to apportion the loan on the investment property. The value of the assessable property is $600,000 and the net value of the exempt property is $300,000.
Loan liability calculation
(Value of secured loan x value of assessable property) divided by (value of new assessable property + net value of existing property)
$300,000 x $600,000
($600,000 + $300,000)
The amount of the loan to be deducted as a liability= $200,000
The assessable value of the rental property
$600,000 - $200,000 = $400,000
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5 |
A customer's child borrows money for their business, secured against an investment property owned by the customer
A customer's child borrows money for their business, secured against an investment property owned by the customer.
The charge or encumbrance against the investment property is for the benefit of a person other than the customer or their partner.
In this case, the customer's child benefits.
The value of the investment property is not reduced by the amount of the charge.
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6 |
Loan used to purchase land, secured over land and an insurance policy
A customer borrows money to buy a block of land. The lender secures the borrowing by a charge over the land. In addition, the lender secures the borrowing against an insurance policy owned by the customer. The charge over the insurance policy is a collateral security.
A charge or encumbrance for the benefit of a third party, or a collateral security, is sometimes called an excluded security. A collateral security is a secondary agreement, supported by money or property, which is additional to the principal security for the same loan.
The value of the insurance policy is not reduced by the amount of the charge. The value of the block of land is reduced by the value of the charge.
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7 |
A customer has a charge secured against both their farm and principal home
A customer has a charge of $100,000 secured against both their farm and principal home. The value of the farm is $180,000 and the value of the principal home is $60,000. The gross value of the farm and principal home combined is $240,000.
($100,000 X $180,000) divided by $240,000 equals $75,000
This means the net asset value of the farm is $105,000 ($180,000 minus $75,000).
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8 |
Customer solely owns farm property with bank loan secured on property and running a primary production partnership jointly with their child
Customer owns farmland worth $200,000. A mortgage of $50,000 is secured against the land. The customer runs the farm in partnership with their child. The partnership owns plant, stock and machinery to the value of $100,000. The partnership has liabilities of $150,000.
The customer has:
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primary production assets of $250,000 (their own land plus a share of partnership assets), and
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primary production liabilities of $125,000 (encumbrance on land plus share of partnership liabilities)
Aggregation applies so total assets of $250,000 minus total liabilities of $125,000 equals net primary production assets of $125,000.
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9 |
Customer is building a new home on a vacant block
From 1 July 2007, land already owned (outright or mortgaged) by the customer on which they intend to build a new principal home, may be exempt from the assets test once the principal home sale proceeds have been received.
If the customer uses the proceeds of sale to purchase a block of land on which they intend to build a new principal home, the land may be exempt from the assets test for up to 12 or 24 months depending on the date of sale (settlement).
If the partially constructed home is to be assessed as an asset, an estimate of the value of the property is needed from the customer. Issue a MOD R form.
The final payment has been made on a newly constructed home
Once the new construction is completed and the customer moves into the new home, it will become the customer’s principal home. This home may no longer be assessable as an asset. (see Assessing house and curtilage for more information)
Once the new construction is completed and the customer has a ‘certificate of occupancy’ for the new home, it will not be the customer’s principal home. Issue a new MOD R to get updated details, including the new mortgage information and new customer estimated value.
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