RS> Yeah, there are always ways around the system. I did it myself
RS> when I was building my house, 0% deposit actually. Mainly coz I
RS> was interested in how feasible it was and I was earning a better
RS> rate on the money I would have otherwise used as a deposit than
RS> I had to pay in interest. Worked very well actually.

BG> Were you still in front when the tax payable on your investment's
BG> interest was taken into consideration though?

RS> Yeah, those were the days before capital gains tax.

BG> I'd assumed as much, and didn't even consider CGT, as it's not
BG> applicable to one's primary place of residence, but as the amount
BG> payable on the sale of an investment property is calculated on the
BG> difference between its initial cost and its resale value, on an
BG> overvalued property, you'd actually be paying less GST than would
BG> normally have been levied.

Well, thats mangling up the calculation considerably. I was talking
about deciding that it made sense to keep what you would normally use
as a deposit invested, earning more than you would pay in interest if
you borrowed 100% for the house. In that case the CGT didnt even apply
coz there was no CGT on the investment, what could have been used as a
deposit.

RS> Even today, its not that hard to get a 20% return on some of the
RS> higher risk investment areas, so even the after tax return can
RS> well be better.

BG> I'm specifically talking about the primary residence here,

You are getting completely confused here. The deposit, the 20%, isnt in
the primary residence if you choose to leave it invested and borrow 100%
of the amount you need to buy the primary residence.

BG> and assuming an interest rate of 10% on the mortgage (basically the
BG> same as a tax-free investment), and a marginal tax rate of 40 cents
BG> in the dollar, your secondary investment would need to be grossing
BG> a return of at least 17% to be just slightly in front,

Even thats not strictly true either. There are plenty of low interest
loans well below 10%.

BG> although I'd be a little worried about the stabilty of any investment
BG> which paid that much.

Sure, I did say higher risk.

RS> Even say long bonds at 10%ish, in some cases that can be tax free
RS> in a family situation if the total interest is below the tax free
RS> threshold if say the wife doesnt work. So worth retaining instead
RS> of using it in the deposit.

BG> Yeah, it's the tax-free investments which reap the major benefits,
BG> but the more correct term for this stuff is actually "tax-paid",
BG> in which case it's the net return which is important.

Nope, you are confusing different things there. If your wife doesnt work,
she can receive the interest on those bonds and as long as the total
income is below the tax free threshold, it really is tax free. Thats
currently $5400, which at 10% is $54K. Its a bit more complicated than
that with dependant spouse rebates and stuff but thats the general idea.

Tax paid investments is something quite difference, dividend imputation
etc. Yes, thats another possible route, tho you wont normally find too
many of those paying 10%

--- PQWK202