Joint tenants is presumed to be a 50/50 split for tax purposes.
Name on title of ip for tax reasons ?
- Thread starter Comet
- Start date
Joint tenants is presumed to be a 50/50 split for tax purposes.
Gee Terry ... good solicitors are hard to find these days
e.g. two unrelated entities A and B are listed as equal co-owners on the title.
However, A paid for the entire purchase.
B is presumed to hold their 50% legal interest in the property on trust for A.
Note that presumption of a trust does not usually apply for husband and wife (presumption of advancement).
Cheers,
Rob
Yes most likely. Unless you are living in the property of course. Don't forget potential stamp duty on the transfer. In Victoria there is no stamp duty for transfers between spouses though.
Gee Terry ... good solicitors are hard to find these days
e.g. two unrelated entities A and B are listed as equal co-owners on the title.
However, A paid for the entire purchase.
B is presumed to hold their 50% legal interest in the property on trust for A.
Note that presumption of a trust does not usually apply for husband and wife (presumption of advancement).
Cheers,
Rob
Of course!
That reminds me of one case - FCT v Cummins from memory. ATO was able to claim the wife held haf the house on trust for the husband who was a barrister with a large tax debt but had gone bankrupt - again from memory.
That was the bankruptcy clawback case...
Hi Aaron_C, could you possibly elaborate on what the problems are if you are in this situation and get audited please?
Thanks, Ali
Think of it this way:
Person A owns Property X in his personal name. Person A is also a director of Company B.
As part of the finance arrangement, the bank puts Company B as the 'borrower' on the loan documentation by mistake (with Person A as guarantor). The bank doesn't care because either way they are covered by a guarantee.
However, because the borrower is no longer Person A, he is not entitled to claim the interest deductions because there is no nexus between the rental income from the property and the interest deductions. Likewise, Company B cannot claim the interest deductions because it doesn't even earn rental income. So you get a double-whammy of interest penalties etc. Don't do it please.
Company B has a right of reimbursement against person A.
Person A can claim a deduction against the payment to or on behalf of company B to satisfy this liability, person A deriving interest from the property.
ASIC will have an interest in person A for misuse of company B to provide loans/guarantess/charges etc.
ATO will have an interest in person A under Division 7A or FBT for using company B as a source of funding.
Person A may have a right to sue the bank to try to recover costs of the mistake.
However person A should have read the contract and got advice from a registered tax agent rather than relying on the advice of a bank.
In the meantime, lawyers are going to make lots of fees.
Cheers,
Rob
Person A can claim a deduction against the payment to or on behalf of company B to satisfy this liability, person A deriving interest from the property.
ASIC will have an interest in person A for misuse of company B to provide loans/guarantess/charges etc.
ATO will have an interest in person A under Division 7A or FBT for using company B as a source of funding.
Person A may have a right to sue the bank to try to recover costs of the mistake.
However person A should have read the contract and got advice from a registered tax agent rather than relying on the advice of a bank.
In the meantime, lawyers are going to make lots of fees.
Cheers,
Rob
My husband and I purchased an OTP apartment in both our names last year. However, we have since decided to have it either solely or mainly in my name, at least for the next five years, as I am in a higher tax bracket. After five years or so, once our income is more or less the same, we would like to have it in both names equally. What's the best approach for this?
Thanks
I'm pretty sure that's called tax avoidance.
I'd call it paying additional tax!
So back to this. Say you are doing the old 20% + costs & 80% split across stand alone securities.
Say the later loan is just in the main earners name and the 20% + costs loan in joint names (to avoid guarantees) is the 20% + joint loans interest fully tax deductible for the main earner (these funds used solely to assist with his / her ip purchase).
I have had conflicting professional opinions on this over the last few years.
I'd say yes but what would I know.
Some accountants would argue that you should have an agreement between the spouses ..............
In the end, in most circumstances, the simple test of who pays the income tax and all the capital gains tax on the property is he or she who gets the deduction.
There are occasional exceptions, But let's not get overly complicated scenarios mixed up with standard ma and pa stuff.
I always refer my clients off to their accountant even the simple little things.................. because often what seems obvious in my mind, is not obvious in their tax advisers mind, and it's their tax adviser that should be giving tax advice, not their broker.
thanks
Rolf
Hi Marty,
Good question. The ATO would consider this as onlending and the 1 name on the new loan could claim the whole of the interest on the 20% loan too. I can't cite any authority for this though.
You are the authority Terry!
This is the way I think about it too so happy with that. I was surprised to get another opinion on it. Sometimes I am loath to get clients to seek advice because it can get lost in the translation between the broker to client and client to accountant. What do you do though you have to defer.
I think that is a great quote !
Can I forward that one to your professional indemnity insurance company ?
Joint ownership with joint borrowings is a very unsettled area of tax law, and it would take a brave taxpayer (or broker) to proceed without specific advice and perhaps a private ruling.
The only Federal Court case of note is FC of T v Reed 88 ATC 5014 and this is in the context of a joint business loan. However, the court was prepared to trace through the funds and connect to purpose.
However the AAT has always been a bit hard on joint borrowings for investment in one name, e.g. comments in Tabone v FC of T 2006 ATC 2211.
Of course the ATO will try to distinguish mere joint investors and enforce their ruling by default.
In other words ... better have a good paper trail because it will all depend on the facts of your case.
Cheers,
Rob
