legal to charge my wife for management her properties?

Hi,

my wife will be having 2 IPs soon, all under solely her name. both are negatively geared.

we intend to manage it ourselves. Her income bracket are higher than mine.

can i get an ABN, formally start a "business" that only manage my wife's IPs? if her IP is getting $300 per week and i charged her say $30 per week and it will become an expenses for her but it is an income for me. Hence this $30 will be at a lower tax bracket. is this legal?

cheers,
Scott
 
thanks nek,

but it says:
"if you earn personal services income as a sole trader, then the information in this fact sheet is of less relevance to you because you are already taxed directly on that income."

i will be the sole trader that manages my wife's IPs. Am i correct here? my wife becomes my business client in this perspective.
cheers.
Scott
 
if her IP is getting $300 per week and i charged her say $30 per week and it will become an expenses for her but it is an income for me. Hence this $30 will be at a lower tax bracket. is this legal?

This is probably OK Scott but:
1. "We" will not be managing it "ourselves" - it will be YOU managing it (or your new entity).
2. $30 on $300 is a 10% fee. Most PMs charge 7.7% - Why are you so expensive?
3. Make sure you have a signed agreement in place that sets out your responsibilites etc. for the fees you charge.
4. You'd want more than your wife as a client otherwise the 80/20 rule thing kicks in
4. For $30 per week x 2 IPs = $60 = $3K pa in fees less tax etc - I really don't know why you would bother.:confused: You are taking petty cash in terms of tax savings and burdening yourself to manage IPs - for what??:eek:
 
There are two separate issues to consider, I think.

One is a tax issue; is this ok with the tax office, and what is the benefit from doing so?

The other is a legal issue; can someone who is not licensed as an estate agent receive payments for managing an investment property on someone else's behalf?



Of those, the first shouldn't be too much of a problem, so long as you play fair. Generally, paying a small allowance to a spouse in return for administrative assistance is accepted for property investors. From memory, this it outlined briefly in the tax office rental booklet.

The second is a state-by-state issue. You may need to consider both your location, and that of your property/s. Check the legislation, but this may limit what you can legally charge for.

You also, of course, need to be charging a fair market rate for the work that you are doing. You might consider tasks such as keeping records, dealing with tradies, etc, as a part of this role. Having multiple properties may make the scenario a little more reasonable, too. If you actually have a property manager, that would detract from your case and you may need to consider a smaller allowance.

The benefit will depend on how the numbers stack up. Purely for example, for some people it might be reasonable to receive $20ph for three hours a week for fifty weeks a year; $3,000 annually. If their partner is on the 38% tax rate, then there might otherwise be say, $1,140 tax on that money. If the non-working spouse has no other income, then they won't pay any tax and as a couple, they find themselves over a grand in front.

So, if you're doing that work anyway, then perhaps giving thought to the scenario might be worth it. Or, depending on your circumstances, perhaps it won't. Consult your accountant.
 
thanks for that Propertunity,
i see your point, yup you are right. not worth such an effort. cheers.

I take on board JamesGG's comments - it could be worth $1K pa to you.

....and at the risk of coming across like that model who was famously quoted as saying that she would not get out of bed for less than $10K....Yes, I would get out of bed for $10K. But would I get out of bed, 365 days a year for a whole $1K - probably not :p;)
 
....and at the risk of coming across like that model who was famously quoted as saying that she would not get out of bed for less than $10K....Yes, I would get out of bed for $10K. But would I get out of bed, 365 days a year for a whole $1K - probably not :p;)

Neither would I. Emphasis on 'if you're doing that work anyway'!

Which then makes it perhaps $1k for what is, essentially, just a quick chat to an accountant and a brief note when compiling the tax info... It all adds up.
 
Would your new company be liable to pay GST on the management fee's collected? Not a big deal but something to consider.
 
The other is a legal issue; can someone who is not licensed as an estate agent receive payments for managing an investment property on someone else's behalf?

I have to agree with this. Self managing is one thing - and that's perfectly fine, but if someone else is earning an income for managing the property surely they'd have to be licensed?

Plus, how well do you know legislation? How would you deal with bad tenants?

IMO if i were to pay someone to manage my property, i'd be handing it to a PM and letting them deal with it.

Also, what is your reasoning for this? Pay less tax? I don't understand the tax system so i have no idea, so i'm curious to how this would benefit either of you.
 
Also, what is your reasoning for this? Pay less tax? I don't understand the tax system so i have no idea, so i'm curious to how this would benefit either of you.

If the spouse has little to no taxable income, they can divert some income as an expense to the spouse, making his own taxable income smaller and hers larger. Since tax payable on earnings is very low if you are on a low income and gets progressively higher as your income increases, he is thinking this might be a legal way to pay less tax.
 
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