Tax Deduction on joint IP

Hi all,
I have a question and need some inputs from you all.
This is my first IP. Currently it is under joint name as husband and wife (not settle yet but the settlement will be around end of nevember or early december as it is new building).
Regarding the tax deduction under joint name, can I put it 95% and 5% as the the husband income is greater than the wife income?
I heard that if we want it to devide the tax deduction as 95% and %5, we need to make a will as if something happen to one of us, the other portion will not go straight into the other partner. but if it is under joint name as husband and wife, if something happen to one of us, the other portion will go straight to the partner.
Is that true?
And if it is under joint name as husband and wife, is the tax deduction usually devided as 50% each? or is it calculated as total income of husband + wife - tax deduction? or can I put it as 95% and 5%?

Thanks all, I will be waiting for some inputs from you all.

Cheers,
Chara
 
Chara

It depends upon how the purchase contract has been written.

If the name on the contract is "Husband and Wife as Joint Tenants", then you have to split the income and deductions 50/50.

If the name on the contract is "Husband and Wife as Tenants in Common", it will depend on the percentage of ownership attributed to each party - if "Husband" owns 95% and "Wife" owns 5%, then income and deductions are distributed according to the relevant percentages (95% to "Husband" and 5% to "Wife") and is reported/claimed on each individual's tax return.

Regarding the making of a Will - if the property is owned as Joint Tenants, ownership will automatically transfer to the surviving partner on the death of the other. If the property is owned as Tenants in Common, the surviving partner continues to own his/her percentage and the deceased partner's portion becomes part of their Estate and is distributed according to their Will. A Will cannot affect tax deductibility and the ATO will not take this into account - if you think about it, a Will is something which does not come into effect until some future time and after a particular occurrence (i.e. the death of the Testator).

It is the original purchase contract which determines income/deductibility and the ATO will use this document as proof of ownership and in assessing each individual's taxation liability.

If you have any doubts, please see the solicitor who is assisting you with the purchase of this property and ask him/her to clarify matters for you.

Cheers
LynnH
 
Regardless of the IP, you MUST make a will.

To die without one is to leave an enormous hassle for your loved ones, and considerable unnecessary expense - all at a time of grief and stress.
Marg
 
Hi Lynnh,
It is an IP. Why you write joint tenant? we will not stay in the house. we will rent it out.
At the moment it says that the title to the property as joint proprietors. I don't know the meaning but it says that if something happen to one of us, the title will automatically pass to the survivor regardless of any provision of the wills.
My lawyer said she doesn't know how the tax deduction work but if it is joint proprietors, the title will pass to the survivor regardless of provision of the wills but if it is devided ownership (95% husband and 5% wife), the title will only pass according what is on the wills. If sudenly the other party change the will before died, the other partner may not get the other portion of the title of the house. So it's the matter of trust.
For this matter, I need to know exactly how it work with the precaution and benefits (pro and cons) so we can make a decision with fully understanding.

Off couse we will be happy if we can make it joint proprietors with tax benefits of 95% and 5%. Is that possible?


Thanks marg for your concern. At the moment we don't have annything valueable yet (except money in our bank accounts :p) so wills are not necessary yet. but when we start owning one or more valueable assets (eg: house, IP, etc), we will make our will. So after the settlement, we will make our wills.

I still waiting for more inputs..
thanks.
 
Chara, I think maybe you should go and visit your conveyancer, and accountant and they can explain the terminology of things like joint tenant etc. It doesn't mean you live there. LynnH and Marg's advice is correct, but perhaps you need to speak with someone.
 
Hi Chara

It is an IP. Why you write joint tenant? we will not stay in the house. we will rent it out.

"Joint Tenants" is a legal term which refers to the form of ownership of the property- it has nothing to do with whether the property is your PPOR or whether it is an IP. "Tenants in Common" is likewise a legal term which refers to a different type of ownership.

At the moment it says that the title to the property as joint proprietors. I don't know the meaning but it says that if something happen to one of us, the title will automatically pass to the survivor regardless of any provision of the wills.

Joint proprietors is the same as "Joint Tenants" and, yes, the ownership passes automatically to the survivor on the death of one of the parties.

My lawyer said she doesn't know how the tax deduction work .....

Off couse we will be happy if we can make it joint proprietors with tax benefits of 95% and 5%. Is that possible?

No, this is NOT possible. As I explained in my first post, tax deductions are determined by the ownership structure of the property - if as "Joint Tenants" then rent and deductions are allocated 50/50; if as "Tenants in Common" with 95/5 split, then rent and deductions are allocated 95/5. You do not get to choose.

Marg has made a very valid point re making Wills - this is essential, as none of us knows what the future may hold. Your solicitor would be the best person to talk to in relation to your concerns about the possibility of the other party changing the Will before s/he dies.

Without having seen your contract or knowing any other details of your purchase, from what you have posted it would seem that you have already signed the contract as "Joint Tenants" (or joint proprietors) with the result that all rent/deductions will have to be split 50/50. If this is NOT what you want in your particular situation, may I suggest that you see your solicitor/conveyancer as a matter of urgency.

Cheers
LynnH
 
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Thanks alot Lynnh for a very good and clear explaination.
Last time I talk to my solicitor, she said that I still have time to think about it before the settlement take place.
I will let my solicitor know about our decision soon and will make our wills soon after the settlement.

Thanks,
Chara
 
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