Question re tax deductibility & loan structure

[Propertynewby]

Hey Guys,

My dad wants to help my sister get into the property market. Just seeing wether this scenario would work...

Assume my dad has approval for 105% purchase (using equity in PPOR for security).

Can he purchase a unit with my sister 50/50 (i.e. so both names on the mortgage and title) but only he claim 100% of the rental income. He is in the highest tax bracket and she is in the lowest, hence they reason for him to be claiming the rental income & interest/expense (maximise negative equity benefit).

The unit would be rented out as an investment.

Thoughts?

Thanks

 

[Terry_w]

Hey Guys,

My dad wants to help my sister get into the property market. Just seeing wether this scenario would work...

Assume my dad has approval for 105% purchase (using equity in PPOR for security).

Can he purchase a unit with my sister 50/50 (i.e. so both names on the mortgage and title) but only he claim 100% of the rental income. He is in the highest tax bracket and she is in the lowest, hence they reason for him to be claiming the rental income & interest/expense (maximise negative equity benefit).

The unit would be rented out as an investment.

Thoughts?

Thanks

No he can only claim 50% of costs in this case.

 

[Propertynewby]

No he can only claim 50% of costs in this case.

Thanks Terry,

Is there any way she can be involved and he still claim 100%?

 

[Terry_w]

Thanks Terry,

Is there any way she can be involved and he still claim 100%?

He could own 100% and she could watch??

You can't claim someone the expenses of someone else.

 

[Propertynewby]

He could own 100% and she could watch??

You can't claim someone the expenses of someone else.

OK thanks. Would i be right in assuming the way to calculate the tax savings in total (if they borrowed 50/50) would be to simply do the following:'

Using a negative gearing cashflow calculator just exactly halve every input. e.g. half the purchase price of unit, half the interest expense, half the body corp costs, half rental income and so on....then just add the two 'tax savings' together? Obviously run two calculations with their respective incomes...

Or is it more complicated than that?

 

[Rolf Latham]

we get this "double benefit" Scenario once a fortnight with "surely there has to be a way around it"


like with most things in this sphere,sure you can get around it, just depends on how complicated and how GREY you want to be

Not something I would advise

ta

rolf

 

[Terry_w]

OK thanks. Would i be right in assuming the way to calculate the tax savings in total (if they borrowed 50/50) would be to simply do the following:'

Using a negative gearing cashflow calculator just exactly halve every input. e.g. half the purchase price of unit, half the interest expense, half the body corp costs, half rental income and so on....then just add the two 'tax savings' together? Obviously run two calculations with their respective incomes...

Or is it more complicated than that?

Yes, work out total income for the property and this goes to each owner. If it is negative this will reduce their income tax on wages etc.

Dad could also purchase 90% daughter 10%. Dad could claim more while it is negative. but will pay more when it is positive.

 

[Paul@PFI]

Thanks Terry,

Is there any way she can be involved and he still claim 100%?

Yes there is. Like all things there are catches. And not 100% but a large %.

Use a NSW land tax unit trust. Loss of main residence exemption (NA ?) but the unitholders would be entitled to a share of net income. It could be structured so that daughter borrows less (or even just a token interest of a few hundred dollars) say even 1% and Dad injects own $ borrowed (100%) against own home and he gets -ng etc. At a later date Dad redeems his units , refinance back to daughter who becomes 100% unitholder. Then there is a "transaction" that can see Daughter owning title not the company (trustee). No duty in NSW in most cases BUT CGT is triggered. Can be issues if bank loan security is involved but I believe PPOR would be used. So that may be a non-issue. The absence of personal ownership preventing main residence exemption remains the chief concern but not a issue while its an IP. If Dad already owns IPs and has a land tax bill this trust will not access a 2nd threshold and will add to land tax costs as if owned personally.

This strategy often works well for many years and when its +ve geared and capable of standalone finance Dad steps out of picture and Daughter gets own loan for 80% etc.