Changing ownership from joint to single soon after purchase

Hi all,

My wife and I purchased a IP in Dec 09. Both the property and loan are in joint names, which by default would be a 50/50 split.

Cue happy surprise! (guess we celebrated too much..) So in Sep 2010 she'll stop working. She probably will get some Family Tax Benefit income. The IP will be CF- for at least 5 years, and it's occurred to me (too late obviously) that the ownership ought to be in my name only to maximise the tax benefits.

Since the FY is not yet ended and the property has not yet appeared in our tax records, what can be done at this point?

Question 1: Is there some legal way we can retroactively adjust ownership so that I can still claim it in full in the 09/10 FY? This would be mostly for convenience so that we could continue to do my return through the accountant and hers on eTax. In other words we'd save on accountant fees and hassle for her, but not much difference in the actual tax benefits.

Question 2: How do we go about transferring a majority or full ownership to my name before the end of June?

I know we were rather silly not to consider this scenario beforehand... thanks in advance for any assistance!
 
As far as I know there is nothing you can do regarding retrospectively changing the ownership but to change it now you have to be careful with regard to getting slaped with stamp duty.

We had a similar situation late last year and our conveyancer got through the adjustment of ownership without getting charged any stamp duty on the transaction.

I suggest you get in contact with her as she will know exactly what to do so you don't end up with any nasty surprises.

Fiona
Tel: (08) 8232 6666
Conveyancing Matters.
 
Turns out that because its an IP and not a PPOR, to convert from joint tenants to single ownership I would be up for stamp duty on 50% of the council rates capital value.

Have also done some investigation on the ATO site and I gather that if we left the joint tenancy in place, my wife would be able to carry forward the losses on her half until she resumed work. This will help somewhat, though the only way to recover all of the same benefit as single ownership would be for her to go straight from zero to almost full-time work to put her in the same tax bracket as me (theoretically - in practice not necessarily going to happen that fast)

Does that sound right? Any other pros and cons I've overlooked? Thanks.
 
Essentially there are only 2 ways as you've discovered.
1. Your wife sells you her 50% share (although I'm pretty sure that it would have to be at market value not council rate value :confused:). This will incur both stamp duty + some CGT if there has been a CG (and you won't even get the 50% discount as you've not held the asset for 12 months)
2. Leave as is and your wife has carried fwd losses that she can claim against future income.

However, don't look too narrowly at the current situation in which you find yourself. In 5 year's time when this IP goes cash flow +ve you may want your wife to be getting 50% of the rental income that you otherwise would be paying PAYG tax on.
 
I think you will find in carrying forward any losses, that it is net losses after exempt income is atken into account as well that are carried forward so if your wife is receiving FTB there might not be any net loss to carry forward.
 
You're right jrc! ATO says "tax loss (when) allowable deductions (...) is greater than the total of your assessable income and your net exempt income" .

Figures aren't good, assuming 2 years out of the workforce:

Year 1
Salary $10k
FTB $11k (FTA/B/bonus)
Less: share of net loss on property $10k
Taxable income $0
Carried forward $0 ($21k less $10k is not a tax loss)

Year 2
Salary $0k
FTB $6k (FTA/B)
Less: share of net loss on property $10k
Taxable income $0
Carried forward $4k

Year 3
Salary $20k (part time return)
FTB $1k (FTA/B)
Less: share of net loss on property $10k
Less: carried forward $4k
Taxable income $7k
Taxed on $1k ($150)

The combination of the re-included exempt income and the tax-free threshold has negated most of the $30k loss on the property! In fact the total tax benefit of this loss is only ((($20k-6k)*0.15)-$150) = $1950.

Compared to writing off the $30k loss under single ownership at 30% = $9000 saved. Even more is saved with each additional year spent on a single income. Add in the resulting simplicity of the tax returns and single ownership is looking compelling.

Propertunity thanks for pointing out the CF+ issue, though I doubt it will influence our scenario as we will almost certainly have finished our family production run :D before any CF+ occurs.
 
[Have also done some investigation on the ATO site and I gather that if we left the joint tenancy in place, my wife would be able to carry forward the losses on her half until she resumed work.

Hello DCarr, sorry for dragging up an old post but I just wanted to ask if you had found out if this was accurate. I am in the same boat as you guys with a lovely suprise about 12 months after we purchased our IP in joint names. Had it for a few years now but because I have a loss on my $0 income I get a reduced amount of Family Tax Benefit. When I asked my accountant if I could claim my loss on my income tax in future years, he said I could only do it in the very next year from when I experienced the loss and if I wasn't working in that year then it was all gone. I tried to find the info on the ATO site but I couldn't find much at all. Thanks
 
In fact the total tax benefit of this loss is only ((($20k-6k)*0.15)-$150) = $1950.

Compared to writing off the $30k loss under single ownership at 30% = $9000 saved. Even more is saved with each additional year spent on a single income. Add in the resulting simplicity of the tax returns and single ownership is looking compelling.
So you save $7K over the next 3 years by moving to single ownership, and you say this is compelling? Wouldn't you stamp duty be more than that?

Also, it looks like you've assumed an ongoing $20K pa taxable loss on the IP. Won't this reduce over time, as rent rises, and depreciation deductions reduce? I know it's not hugely significant, but when you're only looking at a maximum tax saving of $7K relative to stamp duty which I assume would be more than that... :confused:

I'd say the case for the status quo is far more compelling, but perhaps I've missing something, or misunderstood!
 
My wife and I purchased a IP in Dec 09. Both the property and loan are in joint names, which by default would be a 50/50 split.
...So in Sep 2010 she'll stop working. She probably will get some Family Tax Benefit income.

Hello dcarr

Before you make any grand plans you should check servicing with your broker /bank.

Your lender may not be best pleased to hear that your family income has suddenly dropped and that your household expenses are about to increase

If you change proprietorship of the property this will necessitate an actual refinance of the loans.

Are you sure that you would qualify for the loan you currently have if the lender was aware of the impending changes to the family income?

Look before you leap!

cheers
Kristine
 
I think a lot of accountants get this wrong. The tax loss you can carry forward is reduced by your exempt income. See http://www.ato.gov.au/individuals/content.asp?doc=/content/00216837.htm for the calculation.

For a list of exempt income see http://www.ato.gov.au/individuals/content.asp?doc=/content/00232738.htm

For people who are working and then stop working and receive exempt income (e.g. baby bonus, family tax benefits, etc) the loss they can carry forward is reduced. Sometimes to nil.

This is why structuring from the beginning is extremely important.
 
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