tenants in common - Different legal interest in the property

Hi All

Myself and my partner would like to be joint owner of the our 1st IP purchase. Checking ATO website, we found out we may structure our purchase to have different legal interest in the property. I am on higher tax bracket and would benefit most if I can have 80% legal interest and my partner 20% for negative gearing purpose.

Can somebody please advise how can we be "tenants in common" to achieve above results. What does it require to setup property purchase as "tenants in common". What are the present and future implication of such arrangement.

ATO Article - http://law.ato.gov.au/atolaw/view.htm?docid=SAV/RENTAL04/00005

"Dividing income and expenses according to legal interest

Co-owners who are not carrying on a rental property business must divide the income and expenses for the rental property in line with their legal interest in the property. If they own the property as:

- joint tenants, they each hold an equal interest in the property

- tenants in common, they may hold unequal interests in the property – for example, one may hold a 20% interest and the other an 80% interest.

Rental income and expenses must be attributed to each co-owner according to their legal interest in the property, despite any agreement between co-owners, either oral or in writing, stating otherwise."


All it is is a checkbox on the contract to purchase. You either select joint tenants or tenants in common, in which case you select the percentage owned by each buyer.
You need to get your solicitor/conveyancer to specify in that you are tenants in common with your allocated parts in the transfer of land documents. Basically just make it clear to them that you want tenants in common and they should fill in the right documents.

Implications? as you quoted:

must divide the income and expenses for the rental property in line with their legal interest in the property.

some examples are income from rent, all deductions (eg. interest paid, depreciation, immediate repairs deductions, management fees etc...), CGT.

with our IP1, we are tenants in common with unequal parts - my partner 99/100 and me 1/100.
Hi Aman

Some of our JV Partners buy their properties with one owning 99% and the other owning 1%. It's a simple process. Just tell your solicitor that you want to purchase as tenants in common and the percentages you want and she/he will be draw up the paperwork accordingly.

Taking on 80% of the ownership now seems eminently sensible, due to the ability of the partner with the larger taxable income to get the benefit of the negative gearing on the property. However all our buy and holds are long term positions and we look further into the future, i.e. we expect the property to become cash flow positive at some point in the future. Of course, this would put us into a situation where the major income earner is now getting extra income. Not good for us.

And if we wanted to sell the property in the future, 80% of the Capital Gain (after all the usual deductions) would be added to the income of the high income earner. Once again, not what we want.

Cheers, Paul