% split on IP for tax

Hi all

My wife and I are in the process of settling on a property that will be an IP for some time and eventually converted into out PPoR.

Our solicilor is asking what percentage amount we want to put in each persons name.

My income is around $70-77k while my wife's is around 20k.

Would it make more sense to assign a higher percentage in my wife's name for tax purposes?

What is the best recommendation or other factors to consider?
 
Has alot to do with your personal situation...

Like all things in finance I wouldn't just be taking into consideration your current financial situation but also your future situation.

Yes 1 is higher income earner now and tax benefits would work well against this income, but what about in the future if the debt is reduced or even just the rent increased and now the property is making money... then would increase the tax payable.
 
Would it make more sense to assign a higher percentage in my wife's name for tax purposes?
Seek advice from your accountant too.

In VERY general terms - a CF+ property may be better off being majority owned by the lower income earner whilst a CF- property may be better off being majority owned by the higher income earner.

As Brady said though - rents usually increase over time, so a CF- property today could covert to CF+ over time.

Cheers

Jamie
 
Given the property is likely to be negative geared at purchase, today you're clearly better off having the majority of ownership in the name of the higher income earner.

Longer term, the property is likely to have rental increases and thus become positive cash-flow, thus the majority ownership would be better in the name of the lower income earner.

Beyond that, one of two things occur. If the property is sold, then the property is best owned by the lower income earner as this reduces the capital gains tax amount.

If you're still holding it in retirement and using it as part of your retirement income, then it's best owned 50/50 as this is likely the optimal tax position when neither person has an income.

Unless you have a very well mapped out and detailed property plan and cash-flow analysis, my thoughts on this are to keep it simple and go with 50/50 ownership and don't stress too much about it.
 
Thank you all. Very quick.
The property will be positively gears from the start. We don't expect to sell it in the near future.

From what has been said, it sounds like a higher % should be allocated to my wife.

I will definitely try to get professional accountant advise.
 
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Hi all

My wife and I are in the process of settling on a property that will be an IP for some time and eventually converted into out PPoR.

Our solicilor is asking what percentage amount we want to put in each persons name.

My income is around $70-77k while my wife's is around 20k.

Would it make more sense to assign a higher percentage in my wife's name for tax purposes?

What is the best recommendation or other factors to consider?

Other factors:
- Income tax
- CGT
- Land tax
- Stamp duty on any subsequent readjustments
- death
- bankruptcy
etc
 
Terry - Might a NSW fixed trust + merger be a strategy ?

Paul - intriging. Are you suggesting wife act as trustee with husband as unit holder. If husband were to die he could leave his units to the wife. You cannot hold property on trust for yourself so the trust would dissolve leavinng the wife as sole owner, both legal and beneficial.

Dissolution of the trust would be a CGT event, but husband would get the benefits of negative gearig, NSW land tax threshold, and wife will eventually get the main residence CGT exemption.
 
Do you have to pay CGT and stampduty if you vary the split in joint tenants? eg husband has 90/10 ownership and wishes to change to 50:50 with wife?
 
Paul - intriging. Are you suggesting wife act as trustee with husband as unit holder. If husband were to die he could leave his units to the wife. You cannot hold property on trust for yourself so the trust would dissolve leavinng the wife as sole owner, both legal and beneficial.

Dissolution of the trust would be a CGT event, but husband would get the benefits of negative gearig, NSW land tax threshold, and wife will eventually get the main residence CGT exemption.

Thats the basic strategy. A sole human trustee is common rather than a change to the trustee. CGT yes. Duty no. Also property cant be joint after the event as must be solely owned by the sole human trustee who becomes the sole owner. Land tax considerations for the first (XX?) years of course.
 
Do you have to pay CGT and stampduty if you vary the split in joint tenants? eg husband has 90/10 ownership and wishes to change to 50:50 with wife?

Yes. Proportionate. The acquirer is assessed. ie : 40% of the transfer duty amount in your example based on the market value would be assessed to the wife. OSR require a current valuation for associate transfers.
 
Hi all

My wife and I are in the process of settling on a property that will be an IP for some time and eventually converted into out PPoR.

Our solicilor is asking what percentage amount we want to put in each persons name.

My income is around $70-77k while my wife's is around 20k.

Would it make more sense to assign a higher percentage in my wife's name for tax purposes?

What is the best recommendation or other factors to consider?

I had a similar situation. Partner and I bought a house that would evenentually be a PPOR but was rented for the first 12 months. We put title in my name given that the property would produce a net tax loss and with me being on the top marginal rate it seemed to make perfect sense to do that.

However the amount we could have saved by doing this was offset in most part by the imposition of $1,800 in land tax because the total value of my holdings exceeded the land tax threshhold. Had we put the title in joint names we wouldn't have had a land tax bill.

So lesson learnt...Its not all about getting a tax benefit that should determine ownership.
 
Can the percentage be changed later during the course?

I had a similar situation. Partner and I bought a house that would evenentually be a PPOR but was rented for the first 12 months. We put title in my name given that the property would produce a net tax loss and with me being on the top marginal rate it seemed to make perfect sense to do that.

However the amount we could have saved by doing this was offset in most part by the imposition of $1,800 in land tax because the total value of my holdings exceeded the land tax threshhold. Had we put the title in joint names we wouldn't have had a land tax bill.

So lesson learnt...Its not all about getting a tax benefit that should determine ownership.

So should one who has plans to build a property portfolio with her partner should go for the 50-50% sharing. With the male partner on top tax bracket, on short term it may provide no so great tax savings, however long term (hoping the IP is doing well) it will look better as lesser tax on rental income and less CGT if sold.

OR

During the initial few years go for a 90-10% sharing (and get the most out of the negative gearing) and later on (when IP is hopefully positive geared and appreaciated)if possible change the sharing percentage. Is this doable? Would any one know about the fees associated with such move?

Thx.
 
So should one who has plans to build a property portfolio with her partner should go for the 50-50% sharing. With the male partner on top tax bracket, on short term it may provide no so great tax savings, however long term (hoping the IP is doing well) it will look better as lesser tax on rental income and less CGT if sold.

OR

During the initial few years go for a 90-10% sharing (and get the most out of the negative gearing) and later on (when IP is hopefully positive geared and appreaciated)if possible change the sharing percentage. Is this doable? Would any one know about the fees associated with such move?

Thx.

In my opinion neither.

parties should only buy homes in 1 name as
1. there are many planning opportunites and strategies,
2. reduce risk
3. tax strategies
 
However the amount we could have saved by doing this was offset in most part by the imposition of $1,800 in land tax because the total value of my holdings exceeded the land tax threshhold. Had we put the title in joint names we wouldn't have had a land tax bill.

So lesson learnt...Its not all about getting a tax benefit that should determine ownership.

So does it mean if you have a % share in the a property, the threshold for land tax is also calculated according to the % of ownership. Eg: If the high income partner is reaching close to his land tax threshold, the next property they buy, in order to avoid being slugged with land tax, the couple should have most % of the new property under the lower income partner. This way even though income tax benefits are lower but the payment of land tax is avoided. Is my understanding correct?
 
So does it mean if you have a % share in the a property, the threshold for land tax is also calculated according to the % of ownership. Eg: If the high income partner is reaching close to his land tax threshold, the next property they buy, in order to avoid being slugged with land tax, the couple should have most % of the new property under the lower income partner. This way even though income tax benefits are lower but the payment of land tax is avoided. Is my understanding correct?

Nope, it doesn't mean that. Land tax is complicated and varies from state to state.
 
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