Percentage Share of Ownership for Investment Property between husband and wife.

D

DealSeeker

Hi,
I bought an IP around 1 year ago.
At that time we make the ownership as 95% on me and 5% on my wife.
So that for negative gearing purposes I will get to claim on tax 95% of the interest/expenses since I'm earning more while my wife is only doing party time work.

However, we then realized that 1 year on , our property is actually positive geared. (yes total miscalculation. lol)

And because of that if we sell our IP the capital gains will be 95% on me only 5% on my wife. ie. we will pay more capital gains tax.

Can we get a solicitor to change the ownership to 50/50 share between me and my wife?

Will ATO have any issues if I do that?
 
We did somewhat similar thing with one of our IPs. Wife and I had 50/50 and she transferred her 50% to me. Unfortunately, it was few years ago and can't exactly remember the process, but a solicitor and an accountant should be able to tell you the process/impact. Wife had to pay CGT as a result of this transfer.
 
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Yep in Victoria you can change ownership between spouses without stamp duty. However, since it is an investment, you will be up for capital gains tax - which may be quite insignificant since the property was only bought last year so may not even have any growth above the 105% cost base.
 
Aaron_C said:
Yep in Victoria you can change ownership between spouses without stamp duty. However, since it is an investment, you will be up for capital gains tax - which may be quite insignificant since the property was only bought last year so may not even have any growth above the 105% cost base.
Click to expand...

Ok, I really need to be more careful in future. LOL.
so just changing % of ownership between husband and wife and it involve capital gains tax if any? Geez.

That's it first I screwed up on putting too much of my own cash into this IP (As per the question I raised the other day on this forum ).
Now, I got my % ownership wrong. arrh.

Unfortunately right now , it does has growth above the 105%% cost.

So really no point. Because I have to pay for solicitor fees to change the ownership , get valuation to see how much is it above the 105% cost. And how much capital gain tax I have to pay if I transfer the 45% of my 95% to her.
And take the risk if property prices falls. I paid the capital gain tax for nothing???
 
The valuation should be easy - bank valuation can suffice for that which is free. Also if you did go down this path you will need to change the loan since it is basically a refinance.
 
DealSeeker said:
Hi,
I bought an IP around 1 year ago.
At that time we make the ownership as 95% on me and 5% on my wife.
So that for negative gearing purposes I will get to claim on tax 95% of the interest/expenses since I'm earning more while my wife is only doing party time work.

However, we then realized that 1 year on , our property is actually positive geared. (yes total miscalculation. lol)

And because of that if we sell our IP the capital gains will be 95% on me only 5% on my wife. ie. we will pay more capital gains tax.

Can we get a solicitor to change the ownership to 50/50 share between me and my wife?

Will ATO have any issues if I do that?
Click to expand...


Ha ha, that is a miscalculation alright.

In Victoria the stamp duty on changing this would be nominal. It would be a CGT event - so any growth will be taxed on the disposal from you to the wife. ATO won't have any issues.

You will need to discharge the mortgage and reapply for the loan.

Fixing this will cost you a few thousand dollars all up.

Why not just sell your share to the wife and you take your name off title?

Edit - sorry when I said the ATO won't have any issues I lied - if you are wanting to claim the interest then you would have to structure this so that is is a sale at market rates.

A few forum members have transferred to spouses without consideration, ie as gifts, and interest on money borrowed to make a gift cannot be deductible.
 
My thoughts on property ownership splits is fairly simple. First and foremost, consider how you want it to look for your long term end goal.

If the strategy behind this purchase will be to hold it for 10 years then sell, own the property with that exit strategy in mind. If it's a long term buy and hold, think of where things will be in 10 to 20 years.

Immediate tax benefits is fairly negligible when you consider the longer term implications.

If you're intending to someday live of the rent and retire, often the best solution is 50/50 ownership. Right now one person may be earning more and thus there would be an advantage to favoring one person or the other in the ownership structure. Long term however, the outcome will probably be that neither person will be working at that point and 50/50 ownership is clearly the optimal structure in this case.

Negative gearing benefits are an immediate consideration not a long term one. Realistically the gearing benefits for a single property usually only adds up to $1k-$2k per year. This can add up over multiple properties over several years, but eventually the properties will become positive geared and the benefits turn into disadvantages.

Structure your investments with the end goal in mind. In the grand scheme of things the immediate benefits are fairly small.
 
Terry_w said:
Ha ha, that is a miscalculation alright.


Why not just sell your share to the wife and you take your name off title?
Click to expand...
Just to confirm this point. CGT will apply right. So I pay CGT , however in the short term if property prices go down, So I end up paying CGT for nothing?

So far from what I can see there's no free lunch, I have to get hit with something for not making the correct decision from DAY ONE.
 
Changing title may not address your problem. Your wife has borrowed 5% of the sum borrowed I assume ? Or you borrowed jointly and 5% was settled on her interest. So if you (both) refinance there needs to be a round robin or part of the deduction may be lost. This is the issue ATO takes exception to with Hybrid Trusts in TD 2009/17...."Borrowing to benefit others". You think 5% isnt an issue - Whatabout if its 55% or 95% ??? ie ATO consider that the original borrower no longer has the same income entitlement. Hence that portion of deductibility may be cancelled or lost. Make sure your refinance is real. Think it through - It may be harder than you suspect as part of the loan must be repaid THEN new amounts lent. No credit facility may make this problematic. If that can be overcome then:

* Check that the Victorian exemption on spouse transfers applies to you. If not an unexpected duty problem could occur when the transfer gets stamped.

* CGT will apply to the portion changed. If its a loss a refreshed cost base applies.

* Lender approval required.

* You most likely will need a valuation to do the above.

Using a Unit Trust would have been far easier to correct this problem. One of the benefits of a UT is that at a later time refinance is often very easy. Changes to proportionate ownership isnt dutiable in almost all states in many cases if its done correctly too. So lets assume you shift 100% ownership to your wife what will happen if her income vastly increases in future years and you are unemployed ?? I dont make it up - Stuff happens.
 
DealSeeker said:
Just to confirm this point. CGT will apply right. So I pay CGT , however in the short term if property prices go down, So I end up paying CGT for nothing?

So far from what I can see there's no free lunch, I have to get hit with something for not making the correct decision from DAY ONE.
Click to expand...

If there are no capital gains then no tax to pay.
Don't forget the seller will be able to take into account stamp duty, conveyancing fees and other costs associated with the purchase and the sale (their share of these costs).
 
PT_Bear said:
Structure your investments with the end goal in mind. In the grand scheme of things the immediate benefits are fairly small.
Click to expand...

If that was the case superannuation may be the sensible structure. At present CGT rate is as low as 0% and tax on positive income is as low as 0%. Worst case tax rate is 15%. However s66 SIS desnt allow members to sell to their fund so the 50/50 doesnt really seem so smart as 50/50 doesnt allow super - EVER. And may be worse the longer it goes on.

Why not a UT with mum & dad as 50% interests each ? Maybe even a SMSF as a unitholder if property isnt mortgaged? Use other property as security allows this...So a SMSF might fund the deposit. Unitholding % can be changed often without duty in most states. Sure CGT applies but with CGT discounts this isnt often as bad as envisaged.
 
Paul@PFI said:
Changing title may not address your problem. Your wife has borrowed 5% of the sum borrowed I assume ? Or you borrowed jointly and 5% was settled on her interest.
Click to expand...

The Loan was under both our names. However for tax purposes we intentionally made the ownership on the title as 95% for me and 5% for wife.

The Bank don't really care about the 95/5% breakdown as if they have no interest to know about it, Its more like we ask our conveyancer at that time to make it 95/5% on the title, for taxation purposes.

Hence, Before I posted this question on this forum, I thought it has nothing to do with the Bank. Just what is shown on the title.
 
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