My investment property

[wilkie0611]

Hey all is nice to be back have been flat out finishing off my investment property I just built... The question I have for the accountant types out there is...

I am just about to rent out the property I built I built it in both of our name my wife's and my own 50/ 50. What I'm thinking of doing is changing the names on the title 100% into brookes name as she is a stay at home mum with bubs and I'm earning over 100k...

What are the possible advantages/ disadvantages of this???

My next purchase will be in a trust but I know this isn't really an option as costs like stamp duty etc etc will be incurred...

Thanks all look forward to reading your replies.

 

[macca446]

Hey all is nice to be back have been flat out finishing off my investment property I just built... The question I have for the accountant types out there is...

I am just about to rent out the property I built I built it in both of our name my wife's and my own 50/ 50. What I'm thinking of doing is changing the names on the title 100% into brookes name as she is a stay at home mum with bubs and I'm earning over 100k...

What are the possible advantages/ disadvantages of this???

My next purchase will be in a trust but I know this isn't really an option as costs like stamp duty etc etc will be incurred...

Thanks all look forward to reading your replies.

Well apart from having to pay the money to change the name on title you will lose all the depreciation aspect of the property as she has no income to offset it as well as interest charged etc etc if you are not worried about that I would put it in your name as you are the income earner definitely not a wise choice in my opinion.

 

[Asheam]

Will the property be negatively or positively geared?

If it is negatively geared, for now at least the better result would to have the property in your name. As it becomes positively geared however it would be better to have it in your wife's name...

Depending on which state you are in there may be stamp duty payable on a transfer between you?

 

[wilkie0611]

Sorry forgot to mention yes it will be positive by about 40 p/w after all expenses

 

[alexlee]

Sorry forgot to mention yes it will be positive by about 40 p/w after all expenses

Before tax or after tax? Does the figure include depreciation, which is probably significant if it's a new build?

 

[wilkie0611]

This will be the amount I will get in the hand once hl repayments, pm expenses, rates, and insurance have come out of my weekly rent I haven't included any depreciation this will be my cherry on top at the end of the year ... For this reason I am thinking of putting the property 100% into my wife's name as she will not pay tax on the first 18000 she makes and after that it is only a minimal amount compared to my tax bracket... I'm in western australia so far I believe I won't have to pay expenses such as stamp duty

 

[alexlee]

This will be the amount I will get in the hand once hl repayments, pm expenses, rates, and insurance have come out of my weekly rent I haven't included any depreciation this will be my cherry on top at the end of the year ... For this reason I am thinking of putting the property 100% into my wife's name as she will not pay tax on the first 18000 she makes and after that it is only a minimal amount compared to my tax bracket... I'm in western australia so far I believe I won't have to pay expenses such as stamp duty

The point being that if the net is only 2k before tax excluding depreciation, then depreciation will likely make it a loss for tax purposes. What's the point of giving a tax loss to someone with no income to offset it against? A tax loss in your wife's name can be carried forward, but there is no immediate benefit, and will likely be used up in the future at 0% tax. In your name, you get 37% of the tax loss back.

Where's the "cherry"?

 

[zimby]

Good thread, same situation for myself,if the property is in joint names does the income/expense/depreciation get split 50/50? or can It be allocated.

 

[macca446]

Good thread, same situation for myself,if the property is in joint names does the income/expense/depreciation get split 50/50? or can It be allocated.

50/50 Split.

 

[MRO]

I am reasonably sure that stamp duty in WA would apply to this transfer.

CGT would also need to be considered.

What suburb did you build in? Sounds like you have done well.

 

[wilkie0611]

Depreciation would be in the range of 10-12k and will be a bonus to me after tax time plus the 2g in cash-flow if I put the property into my wife's name I won't pay a cent tax on this as she doesn't earn a income... I also have a trading account in her name for this reason

 

[wilkie0611]

MRO I've talked to my bank manager and as far as she knows a change of name on the title won't incur sd as we aren't selling the property this could change as my bank and the advice/ service I've received hasnt been the greatest

 

[alexlee]

Depreciation would be in the range of 10-12k and will be a bonus to me after tax time plus the 2g in cash-flow if I put the property into my wife's name I won't pay a cent tax on this as she doesn't earn a income... I also have a trading account in her name for this reason

So she gets the rent and expenses and you get the depreciation? Good luck.

 

[macca446]

Depreciation would be in the range of 10-12k and will be a bonus to me after tax time plus the 2g in cash-flow if I put the property into my wife's name I won't pay a cent tax on this as she doesn't earn a income... I also have a trading account in her name for this reason

Without income no depreciation to offset,read some books about investing and tax

 

[MRO]

MRO I've talked to my bank manager and as far as she knows a change of name on the title won't incur sd as we aren't selling the property this could change as my bank and the advice/ service I've received hasnt been the greatest

You bank manager is not the person to get stamp duty advice from. Possibly they are talking about stamp duty on the mortgage or bank fees to change the names on the mortgage. Transfer of the property (regardless of whether it is a sale or not) is still likely to apply as far as I know.

 

[perthguy]

MRO I've talked to my bank manager and as far as she knows a change of name on the title won't incur sd as we aren't selling the property this could change as my bank and the advice/ service I've received hasnt been the greatest

This sounds like very bad advice to me. As far as I know, Stamp Duty and Capital Gains Tax would apply.

http://www.lifestyle.com.au/property/changing-property-ownership.aspx

Also note:

Not for tax benefits

Part 4A of the tax legislation tells us that you risk contravening anti-tax avoidance rules if you enter into a scheme (transaction) with the sole or dominant aim of obtaining a tax benefit. Put differently, you must have a reason other than tax benefits for completing a transaction, or you could get in trouble with the ATO. There are many reasons why people change the ownership of property, such as asset protection, to own their home sooner, different personal risk tolerances and so on. Just be very clear on why you’re changing a property’s ownership and it might even be wise to document the same.

 

[jroth]

I wouldn't do it

It makes no sense to transfer it to a non-income earner with the significant depreciation benefits you would get for a new property when your income is what you've stated. It might be different if it was a 30 year old property that was positive after expenses with little/no depreciation.

 

[Dimsh]

I recently done a study to figure out whether it makes any sense to build/buy a new property into trust or wife's name and pay no income tax or to hold in my own name.
Here are the inputs:
Build/buy price (310k)
Rent: 370 p/w
Agent: 7.7%
Water: 200 p/q
Council: 260 p/q
Insurance: 970 p/a
Rented: 50 week p/a
Holding time: 10 years
Starting depreciation 12k p/a with gradual drop off to 8k p/a

The results are as the following:
My own name (40% tax rate) - NPV=73k
Trust/wife name (0% tax rate) - NPV=47k

My conclusion is that it does not make any sense to own rental property in the name of someone who pays 0 tax. With trust I have not taken land tax into account which would have reduced NPV even further.
Also, why sell good property - refinance in the future and pay no tax.
Australian tax system offers tremendous tax advantages to property investors by allowing negative gearing, make sure to take the full advantage of it. This is your hard earned cash at the end of the day.

 

[coastymike]

Does the npv analysis include capital gains on sale ?

Was the analysis done with a discretionary trust or a unit trust with you holding the units ? I would think a unit trust with you holding the units would provide the same npv as holding in your own name.

 

[Dimsh]

NPV included full property cycle with all fees and charges on the way in and out. The 50% CGT discount, sellng agent fees etc. all discounted back to today.
This was discretionary trust as unit trust works similar to holding a property in your own name unless it has been worded to convert into a discretionary trust at some later point.