14 Oct 2024 Podcast: Q&A – What is Debt Recycling & QLD First Home Buyer Savings

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In this episode, Evelyn shares exciting updates for first-time home buyers in Queensland, including increased stamp duty thresholds, expanded home buyer guarantee schemes, and new grants and concessions.

These changes offer significant savings and benefits for first-time buyers in the region.

Additionally, Evelyn answers questions about debt recycling, explaining how this strategy can convert non-deductible debt into tax-deductible debt. She highlights the importance of correct loan structuring and consulting financial professionals to maximise tax benefits. We hope you enjoy this informative episode!

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You Have My Interest is brought to you by Everlend, a mortgage and finance broking firm built for the purpose of educating and empowering you to make informed financial decisions tailored to your wealth goals. Find out more and book in your free initial consultation at ​​https://www.everlend.com.au/

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You Have My Interest provides information and educational content relating to mortgages, finance and property. You Have My Interest‘s content is general in nature and does not take into account the individual financial, legal or tax needs or objectives of its audience members.

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Podcast produced with Apiro

Please find a Podcast summary below with the interview highlights:

Acknowledgment of Country

The episode begins with an acknowledgment of the traditional owners of the land.

1. Queensland First Home Buyer Updates

Evelyn highlights recent changes in Queensland’s stamp duty thresholds, making it easier for first-home buyers to enter the market:

  • Stamp Duty Changes:
    • Exemption threshold increased from $500,000 to $700,000.
    • Discounted duty applies between $700,000 and $800,000.
    • Previously, buyers of a $700,000 property paid ~$17,000 in stamp duty, now a full exemption applies.
  • Vacant Land Concessions:
    • Full exemption threshold increased from $250,000 to $350,000.
    • Discounted duty applies between $350,000 and $500,000.
  • First Home Owner Grant:
    • $30,000 grant remains available for new builds or construction up to $750,000.
  • Alignment with First Home Guarantee Scheme:
    • Buyers can now purchase properties up to $700,000 with only a 5% deposit and no stamp duty.

These changes reflect the rising property prices in Queensland, especially in Brisbane, where median house prices have reached a record $828,000.

2. Main Topic: Debt Recycling

What is Debt Recycling?

Debt recycling is a financial strategy that converts non-deductible home loan debt (e.g., your primary residence mortgage) into tax-deductible debt by using loan repayments to fund investments.

How Debt Recycling Works:

  1. Pay down non-deductible debt:
    • Pay off as much of your home loan (non-deductible debt) as possible.
  2. Redraw funds for investment:
    • Redraw the repaid funds and invest them in tax-deductible purposes (e.g., buying an investment property or shares).
  3. Tax Benefits:
    • The redrawn funds become tax-deductible debt as they are used for income-generating investments.

Client Example:

  • Scenario:
    • Clients purchased a $2 million home with a $1.6 million loan and $200,000 in an offset account.
    • Six months later, they used the $200,000 to purchase an investment property.
  • Debt Recycling Strategy:
    • Paid the $200,000 from the offset into the home loan, reducing it to $1.4 million.
    • Redrew the $200,000 for the investment property deposit, converting it into tax-deductible debt.
    • This increased tax efficiency without altering their existing financial structure significantly.

Key Considerations and Risks:

  1. Loan Structure:
    • Use a variable rate loan to enable lump-sum repayments and redraw flexibility.
    • Fixed-rate loans limit additional repayments and redraw capabilities.
  2. Offset Accounts:
    • Funds in offset accounts should be treated as reserved for a specific purpose, not casual spending.
  3. Planning Ahead:
    • Ensure your strategy aligns with future goals, such as turning a primary residence into an investment property.
  4. Tax Advice:
    • Always consult an accountant or financial advisor to structure debt recycling properly and maintain compliance with tax laws.

3. Takeaways

  • Queensland Updates:
    • Significant concessions for first-home buyers, particularly in stamp duty savings.
    • Brokers can assist clients Australia-wide, with remote services making the process seamless.
  • Debt Recycling:
    • A powerful tool for homeowners looking to maximise tax efficiency.
    • Requires careful structuring and professional advice to avoid common pitfalls.

Evelyn concludes by encouraging listeners to seek expert advice for tailored financial strategies and to reach out with any questions.

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