A new investment property loan with my single title or joint title with my wife
You must distinguish between ownership and loans. Could be A owning with A on the loan or A and B on the loan. income and deductions fall into the hands of A.
If A and B owners both must be on the loan and income and deductions will be shares as per legal ownership percentage.
many other issues to be considered as well.
If A and B owners both must be on the loan and income and deductions will be shares as per legal ownership percentage.
many other issues to be considered as well.
You need to seek professional tax advice regarding this. Paul on the forums is fantastic!
But along with tax implications there are also legal considerations and someone like TerryW can guide you on those.
To answer your question from a non accountant then a lot will have to do with the properties cashflow, if it is neagative then best to be in the highest earner (yourself) but if positive then against your wife as she earns no income and will not be taxed (or taxed very little). Again I am far from an expert so please seek correct taxation and legal advice.
For most people the ownership considerations are directly related to the best tax outcomes. I think people need to consider the longer term implications of the tax deductions, most people tend to focus on the short term implications.
Short term:
If the property is negative geared, then usually the greatest benefit occurs when the property is owned by the highest income earner because they get the most tax deductions. I see a lot of people who purchase property this way because they want the most back in their tax returns.
Medium term:
Often properties don't remain negative geared indefinitely. Over time the rents increase and the properties become positively geared. The cash flow is eventually in surplus and tax has to be paid on that surplus. In this case, the person with the lower income would be better suited to owning the property as they'd pay less tax, possibly none at all.
Long term:
Thirdly there's the really long term scenario where you both own the property into retirement and are living off the income. Neither person is working at that point so ownership of 50/50 would distribute the income and probably have the most efficient tax outcome.
Ownership structure also comes into the tax considerations. Despite there being 50% CGT discounts after 12 months, owning in the low income earners name is probably going to have the best CGT outcome (unless you make a loss).
There's no perfect solution. Ideally you'd make decisions about what you'll do with this property (would you hold it for 5 years or 50 years), accurately predict the capital growth and future tax laws and plan for the best outcome. You'd also know what your future investment strategy would be and factor in events like loan increases and future purchases.
Super long term:
Consider buying in a trust. Nobody gets the negative gearing benefits, these are contained within the trust until the property is positive cash geared. At that point, profits can be distributed to the beneficiaries with the lowest income and this can be updated as circumstances change. No short term benefits but the long term flexibility is often the most superior of all of them options.
People should seek advice from their accountant on these various scenarios, but people also need to consider the bigger picture and ask the right questions. In the absence of any alternatives, most people (and accountants) simply focus on the short term implications of negative gearing. This can be very costly later in life.
Short term:
If the property is negative geared, then usually the greatest benefit occurs when the property is owned by the highest income earner because they get the most tax deductions. I see a lot of people who purchase property this way because they want the most back in their tax returns.
Medium term:
Often properties don't remain negative geared indefinitely. Over time the rents increase and the properties become positively geared. The cash flow is eventually in surplus and tax has to be paid on that surplus. In this case, the person with the lower income would be better suited to owning the property as they'd pay less tax, possibly none at all.
Long term:
Thirdly there's the really long term scenario where you both own the property into retirement and are living off the income. Neither person is working at that point so ownership of 50/50 would distribute the income and probably have the most efficient tax outcome.
Ownership structure also comes into the tax considerations. Despite there being 50% CGT discounts after 12 months, owning in the low income earners name is probably going to have the best CGT outcome (unless you make a loss).
There's no perfect solution. Ideally you'd make decisions about what you'll do with this property (would you hold it for 5 years or 50 years), accurately predict the capital growth and future tax laws and plan for the best outcome. You'd also know what your future investment strategy would be and factor in events like loan increases and future purchases.
Super long term:
Consider buying in a trust. Nobody gets the negative gearing benefits, these are contained within the trust until the property is positive cash geared. At that point, profits can be distributed to the beneficiaries with the lowest income and this can be updated as circumstances change. No short term benefits but the long term flexibility is often the most superior of all of them options.
People should seek advice from their accountant on these various scenarios, but people also need to consider the bigger picture and ask the right questions. In the absence of any alternatives, most people (and accountants) simply focus on the short term implications of negative gearing. This can be very costly later in life.
Focusing on tax often means all the other areas that need considering don't get considered.
Land tax is often a biggy that is overlooked.
buying in one name, or even both names has estate planning implications too. The owner of the property can sell, mortgage, gift or will their property to somone other than the spouse. It might still be a good idea to buy in one name, you just have to weigh up all the issues.
Land tax is often a biggy that is overlooked.
buying in one name, or even both names has estate planning implications too. The owner of the property can sell, mortgage, gift or will their property to somone other than the spouse. It might still be a good idea to buy in one name, you just have to weigh up all the issues.
Check out the articles in my first few newsletters on ownership structure. I generally prefer not to jointly own property.
http://www.loan-experts.com.au/article/
Joe, I see 2 issues
1. One spouse may suffer credit impairment
2. Servicing, since joint and several liability if one spouse later tries to buy on their own or guarantee a trustee loan (etc) then they will be assessed on the total debt of all the joint loan, but only get the benefit of being assessed on their share of the rent.
1. One spouse may suffer credit impairment
2. Servicing, since joint and several liability if one spouse later tries to buy on their own or guarantee a trustee loan (etc) then they will be assessed on the total debt of all the joint loan, but only get the benefit of being assessed on their share of the rent.
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