Tenants in common - what proportion?

Hi,
My husband and I are just about to settle on our 2nd IP, and have nominated to be "tenants in common" on the title, although the mortgage is in both names.
My husband is the sole income earner currently, although I plan to go back to work to some extent in the next few years, when the kids are a little older.
My question is what is the best way to proportion the title?
The property will be just negatively geared, but I imagine neutral in a short amount of time. I understand that it is good to have the title propotioned to the incomes on the owners (ie 90:10) while it is negative, but that it is not so good once it becomes positive...is this correct? If this is so, in what proportion should the property be split, in our situation?
Thanks in advance for your thoughts...

Cheers, Nards

There really isn't an 'ideal' proportion. You have negative gearing benefits initially, which are nice, but the future positive gearing and the capital gain may offset that. And since you are going back to work, who knows? I don't want to sound like you are getting palmed off, but you need to see an accountant. You need to over your investment plan (eg how long you plan to hold on to the property), a brief income and expense statement for the property so you can see the cost of not negatively gearing and how long it will probably last for, reviewing your income and expense figures and of course your asset protection risks.

You would be needing to discuss information to reach that decision that most people would not feel comfortable sharing in a public forum.

Something else to consider, and you should talk to your accountant, is whether it is possible for your husband to use salary packaging.

The ATO have confirmed that where a property is jointly owned between related parties, one owner can salary package up to 100% of the costs and this will be exempt from FBT.

I'm not giving advice on how to own the property, but if it was owned jointly (50:50), your husband could salary package the interest cost for example, effectively getting the tax benefit in his name and maybe a small loss or profit in your name.

e.g. If we ignore depreciation (as it can't be packaged), and say....
Rental Income $10,000
Interest cost 12,000
Other costs 4,000
Net Loss (6,000)

Normally if you owned this 50:50, the loss would be shared equally, and if you have a low income you don't get much benefit.

If the higher income earner salary packages all the expenses, he then receives an immediate tax break in his salary for the $16,000 of costs.

The net rent is still shared equally, and as all costs have been packaged, you would each have a rental profit of $5,000. For a low income earner, this may have little or no tax payable on it. The high income earner will have tax to pay on the $5,000, but has received a tax break on the $16,000 of costs throughout the year, so effectively he has a rental loss of $11,000.

You'll note this loss is more than what he would be entitled to if he had 100% ownership of the property.

But you get the benefit of any capital gains being shared equally if the property is later sold.

And you have a lot of flexibility - if your income situation changes, the amount of costs that are packaged can be reduced, to keep a tax balance between the two of you.

As I said, talk to your accountant, but I think there is more potential in this type of arrangement than trying to get the ideal "TIC" split.

reidy75 said:

Something else to consider, and you should talk to your accountant, is whether it is possible for your husband to use salary packaging. .

Click to expand...

This has been mentioned before on this forum. I am wondering what the advantage of doing this over providing a tax variation? Surely its the same result?

For future purchasers however (and the mortgage brokers here could comment further), but wouldn't the fact that your pay slip would now reflect this reduced take-home pay, be more problematic from a servicing perspective?