Joint Proprietor vs Tenants in Common

Hi all,

My wife and I are buying our first home.

The long term thinking is that in a few years time, we will upgrade and rent this one out.

My question is, does it make sense to set it up as Tenants in Common 50/50 now, and then change it to some other proportion later (as we have different levels of income) when we rent it out?

Is it just as easy as that? Can we change the proportion of Tenants in Common anytime we want? Whats the catch?

thanks!
 
The catch is any transfer of title will be a CGT event, so CGT will be triggered.

you will also need to reapply for the loans. Change in ownership results in stamp duty, but land in Vic will probably be exempt under s45 Duties act.

Consider the deductibility of interest too - you could destroy it.

see my newsletters for some articles on this topic.
 
Hi all,

My wife and I are buying our first home.

The long term thinking is that in a few years time, we will upgrade and rent this one out.

My question is, does it make sense to set it up as Tenants in Common 50/50 now, and then change it to some other proportion later (as we have different levels of income) when we rent it out?

Is it just as easy as that? Can we change the proportion of Tenants in Common anytime we want? Whats the catch?

thanks!

Good question. There is a catch. Your reason for changing ownership may fall foul of the general anti-avoidance rule contain in Part IVA of the tax act. You are seeking a tax benefit from the contemplated change.

Changing title for some other reason may not trigger this problem. eg : From 50/50 to 100% sole ownership or from sole ownership to 50/50 where there is some reason other than just accessing an efficient tax outcome. Also the amount of the change needs to be actually refinanced or some of the original loan interest deductibility will be lost.

But changing to access improved tax outcomes is a fail really. You need to look at the relevant taxpayers marginal tax rate. ie the rate that affects a neg gearing loss. I often get asked if its worth fiddling with % if one taxpayer earns $86K and the other $170K as an example....They are both on the same marginal tax rate. Even if the lower income was $50K the difference in MTRs is only 4.5%. On a $10K loss this would yield a tax saving of just $250 annually by changing ownership.

If the property is in Vic you do have access the the duty concessions BUT that's just duty. Changing ownership without refinance can be fatal to deductions. For example if you decided to revert to sole ownership without a refinance then the ATO could easily deny 50% of interest deductions.

Yes as Terry says the change is a CGT trigger but since it was described as a main residence no actual tax may be involved. The market value of the prop at the time it first earns rent may be the relevant CGT cost when the property becomes an IP.

Personal tax advice may assist a decision that avoids changes later.
 
You should also consider the difference between each form of holding - TIC passes each party's portion to the surviving party without recourse to any will which may be fine in the case of the ppor but this may change down the track.

JT however allows you to pass your portion to whom ever you feel fit according to your will eg back to your family members rather than the spouse.
 
You should also consider the difference between each form of holding - TIC passes each party's portion to the surviving party without recourse to any will which may be fine in the case of the ppor but this may change down the track.

JT however allows you to pass your portion to whom ever you feel fit according to your will eg back to your family members rather than the spouse.

Opposite mr No mates.

On the death of a JT their interest in the property passes to the surviving joint tenants. i.e. it bypasses whatever is in the will (doesn't mean this cannot be challenged)

A TIC can leave their share to anyone in their will. (this can also be challenged)
A tenant

Also consider 2 JTs owning a property jointly and both die in a car accident. Unless there is evidence proving otherwise the older of the 2 will be presumed to have died first. That means the younger JT will inherit for a second and then the asset property via their will.
 
If you were TIC and not partnered and one bought the other out, what sort of events would that trigger, ie, it is not done for tax purposes, or gain but suppose one wants to sell their share to the other?
 
If you were TIC and not partnered and one bought the other out, what sort of events would that trigger, ie, it is not done for tax purposes, or gain but suppose one wants to sell their share to the other?

all the usual. stamp duty and CGT, new loan application etc.
 
I think it would be wise to spend some time with an advisor, and give them the full picture now, and then were you see your self in the future. That way each of the options can be examined and costed, to see which one would work for you. The issue of what the funds are used for will also be taken into consideration to determine tax deductibility. Usually its quite a challenge to get the equity out of a PPOR when converting to an investment property. Some people sell the property to a trust, to release the equity, and they are also setting themselves up to minimise land tax, in later years. Again, and advisor will look at all options, cost them and hopefully you will make the right decision from there.
 
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