Is it worth changing Ownership structure?

[SYF]

I need some advice...
My husband and I purchased our first IP last year.
I educated myself by reading books, going to seminars and visiting this forum.
When we purchased an IP, our mortgage broker advised to have a property ownership with 99% in my husband's name and 1% in my name. This, of course made sense because he earns close to 100k and I earn 20k and IP is negatively geared.
I recently got in touch with my lawyer and asked where does this arrangement show in our document, he said that the ownership is 50/50. He checked all his note from our meetings but he did not find any record of 99/1 arrangement
I looked at my email correspondence with my lawyer, but can't find any record of this either. I thought that I discussed this with him, but I don't really trust my memory to be honest(especially since having 2 children, my memory loss is significant...
I asked how much it would cost to change this and the reply was:
You are looking at stamp duty on the transfer of the 49% share $5300.00. There may also be some bank fees involved for the consent and production of title deed.

If the ownership was 99/1, the IP would have been costing us $70 per wk. Now it is going to be $100 per wk. (I use PIA software)

Firstly, is there any way to somehow fix this without any significant cost?
and secondly, is it worth changing the ownership considering that we would like to hold this property indefinitely?

I am so very devastated by this mistake...but it is a lesson for us not to make the same mistake again for the next Property investment purchase.

Appreciate any comment.
Thank you

 

[Propertunity]

You can "sell" a portion to your husband so that he ends up with 99% and you on 1% as you originally planned. This may create a CGT event & certainly SD has to be paid.

Before you embark on any of that however, consider what may happen in the future:
1. You may go back to paid employment and be earning in the same tax bracket as your husband, in which case 50/50 is fine.
2. Fast foward a couple more years. Now the property has had some rent increases and is no longer negatively geared. The additional income is now (if 99% husband) being taxed at the highest rate possible. This is not good. This is when (if you are not working) you want the property to be 99% yours (the lowest tax payer).

So, there are other considerations. Discuss with your accountant before doing anything.

 

[emptyvessel]

I always see reason 2 quoted, and it seems like a reasonable proposition until you consider that most smart property investors will go on to purchase additional properties. These subsequent purchases will most likely start out negatively geared and have other deductions available like depreciation. So, even if IP 1 does go positive, it is highly likely to be offset by the deductions in IP 2, 3, 4 etc etc.

Mind you, I don't think this is a good reason for you to change ownership structure. If it was me, I would leave it the way things are as long as I can manage the cashflow. For your next purchase look at changing the balance with a larger proportion with your husband. In my case, it is 100% me. We have no intention of my wife going back to work. To the contrary, the goal is for me no to have to work as well! With +vely geared properties bringing in income and me not working, the tax becomes a much smaller problem. At some point in the distant future I will be paying alot of tax due to rent, but I am prepared to wear this and deal with it through effective channels. Frankly, if I am earning so much money from rent that I am paying the top tax rate, bring it on. I will be complaining about my tax bill whilst sitting back at the beach in Maui. Poor me!

 

[SYF]

Thank you

Thank you Propertunity and emptyvessel.
Now I don't feel as bad as I did. We will definitely talk to our accountant and seek advice. We can manage cashflow with 50/50. I will not be working full time for a while (maybe never) and even if I work a bit more, my wage will not get as high as my husband's. IP may stay negative for a long time, so I do feel that we need to look at the options in terms of ownership. But I can also see a point that emptyvessel made about adding more IPs will make this insignificant.

When you purchase an IP, it is nothing like just reading a book or magazine. It is talked about a lot in this forum too, but you learn a lot from the real life experience. Sometime I feel overloaded with information, and sometime feel like I know a lot. And then I feel like I am lost.

Thanks again for your comments. These comments helped me to step back and look at the big picture

 

[Terryw]

S,

There is provision in the Duties Act to fix a mistake without stamp duty applying, see s65(14)
http://www.austlii.edu.au/au/legis/nsw/consol_act/da199793/s65.html

But in this case I don't think this is the sort of error that the section would apply for. You simply forgot to mark it on the contract of sale at purchase.

If only you had used a unit trust structure as mentioned by Chris Batten in another thread here. You would have ended up with the same ownership results, same land tax, same interest deductibility etc, but you would have been able to transfer the units to each other without stamp duty.

 

[SYF]

Thank you, Terryw.
I wonder if I should e-mail your link to my lawyer and ask about it.
I suppose we got nothing to lose. So I will do that and see what he says.

Ta. SYF