Two loan applicants,one owner/investor - Tax treatment

[Chromium]

Hello,
HELP needed...URGENTLY...

Hubby and wife getting an LOC out of equity and using it as 20% to buy an IP. Bank lending 80%. Wife a homemaker and hubby a wage earner.

Can they own the property in both names but then husband gets Maximum Tax benefit @ tax time...?? How does taxman treat this ownership structure ?

Or would it be wise to buy in only hubby's name but have both as loan applicants..??

Sorry for a bit non-coherent post...but will improve next time..

 

[Olive]

Our accountant advised us (we're in a different situation we both are earner at 50/50) we should therefore put our IP under both names so we both can get the tax benefit. If for your situation IP under hubby's name can help get max. tax benefit since wife isn't a earner.

 

[josko]

If both names are on the title and you are tenants in common you can allocate how many shares each of you own.

Alternatively put the title in your husbands name only.

Having both names on the loan will not affect either way.

PS If you are joint tenants on the title, the accountant will have to allocate tax 50/50.

 

[s_t]

Keep in mind the objective of this is to make a profit in the end! Not just endless losses for tax purposes.....

 

[Chromium]

If both names are on the title and you are tenants in common you can allocate how many shares each of you own.

Alternatively put the title in your husbands name only.

Having both names on the loan will not affect either way.

PS If you are joint tenants on the title, the accountant will have to allocate tax 50/50.

Just to clarify...once again...(sorry)

So hubby could be the owner on title deeds, getting max tax advantage but both loans (LOC and 80% loan) are on joint names...and hubby claims expenses and interest on his wages..is that correct..??

Do I need to get ATO ruling for this..?? Or is this standard structure..?

I checked with my accountant and he was trying to convince me to buy the property on both names so it becomes easier for pre tax salary sacrifice later but I do not wish to go down that path as yet...due to uncertainty with my employer.

 

[The Y-man]

Just to clarify...once again...(sorry)

So hubby could be the owner on title deeds, getting max tax advantage but both loans (LOC and 80% loan) are on joint names...and hubby claims expenses and interest on his wages..is that correct..??

Do I need to get ATO ruling for this..?? Or is this standard structure..?

I checked with my accountant and he was trying to convince me to buy the property on both names so it becomes easier for pre tax salary sacrifice later but I do not wish to go down that path as yet...due to uncertainty with my employer.

I understand that the title must be as "Tenants in Common" as different form "Joint". This must be stipulated at the time of pruchasing the property.

Tenants in common will let you allocate 99% ownership to hubby and 1% ownership to you. Talk to your conveyancing team.

Cheers,

The Y-man

 

[josko]

Just to clarify...once again...(sorry)

So hubby could be the owner on title deeds, getting max tax advantage but both loans (LOC and 80% loan) are on joint names...and hubby claims expenses and interest on his wages..is that correct..?? YES

Do I need to get ATO ruling for this..?? Or is this standard structure..? No Standard procedure

I checked with my accountant and he was trying to convince me to buy the property on both names so it becomes easier for pre tax salary sacrifice later but I do not wish to go down that path as yet...due to uncertainty with my employer.

I am no accountant and I guess that decision is in your hands. I can't quite figure out what the property has to do with pre-tax salary sacrifice though.

 

[Chromium]

I can't quite figure out what the property has to do with pre-tax salary sacrifice though.

Hi Josko,

This is what I learner from my accountant...apparently you can salary sacrifice interest burden / payments from your income and thereby reduce your taxable income..may be I am wrong about this...

I think this is something on the lines of salary sacrificing for your car / laptop which reduces your taxable income except that the asset you are buying is an investment property instead...

I am too confused and too excited about doing everything right..so I don't get burned / hurt later during tax time...so please excuse some errors in assumptions / understandings..

 

[josko]

Sounds interesting, but as you say not really applicable if you're not really earning a great income and are on lower tax bracket anyway, then the benefit ...to me.... doesn't seem to be as good than if your hub got full negative gearing advantage.

 

[Mry]

This is what I learned from my accountant. Apparently you can salary sacrifice the interest expense from your salary and thereby reduce your taxable income..may be I am wrong about this...

(cleaned up the question a bit)

True, but here's what kills the deal most of the time -

Will your current employer allow you to salary sacrifice the interest on the investment property? Do you plan on moving into another job in the next few years where that employer will not allow you the same tax treatment?

 

[alexlee]

In any case, salary sacrificing the interest only has the benefit of saving on the superannaution contribution, right? Even if your employer doesn't allow salary sacrifice on interest, you can claim the interest on your tax return anyway and use the income tax variation form to claim the deductions every month.
Alex

 

[Kristine..]

I understand that the title must be as "Tenants in Common" as different form "Joint". This must be stipulated at the time of pruchasing the property.

Tenants in common will let you allocate 99% ownership to hubby and 1% ownership to you. Talk to your conveyancing team.

Cheers,

The Y-man

Yes, and as this purchase is for 80%LVR then that's not a problem ... but ... many lenders will only lend to 90%LVR for Tenants in Common and that could stymie increasing borrowings against equity further down the track

 

[Kristine..]

Just to clarify...once again...(sorry)

So hubby could be the owner on title deeds, getting max tax advantage but both loans (LOC and 80% loan) are on joint names...and hubby claims expenses and interest on his wages..is that correct..??

Do I need to get ATO ruling for this..?? Or is this standard structure..?

I checked with my accountant and he was trying to convince me to buy the property on both names so it becomes easier for pre tax salary sacrifice later but I do not wish to go down that path as yet...due to uncertainty with my employer.

Keep in mind that rents will increase over time, and so will Mr Borrower's earnings, so what goes around comes around

If you buy as Joint Tenants, with a deemed share / split 50/50, he may receive a little less tax benefit now, but you will receive your share tax free.

As time goes by, and the property starts to produce actual cash flow, not just 'negatively geared with a positive cash flow', then your tax free share will assume greater importance and the weighted average return of the property will start to hit it's stride.

Don't be short sighted. Keep the big picture in mind. If you are buying this property to hold, the balance of cash flow will change. If you are buying to sell, wouldn't you rather have tax free or tax minimal capital gains?

The traditional way of investing was to put the assets in the name of the lower income earner. So called negative gearing can blind us to what we are really doing. Tax losses are temporary, make sure you structure this appropriately right from the beginning to save hand wringing and 'we should have done it another way' remorse later

Cheers
Kristine

 

[ritchie77]

I understand that the title must be as "Tenants in Common" as different form "Joint". This must be stipulated at the time of pruchasing the property.

Tenants in common will let you allocate 99% ownership to hubby and 1% ownership to you. Talk to your conveyancing team.

Cheers,

The Y-man

Yes I believe this is the correct position.... If you are both on the loan application the minimum the wife can have is 1%, therefore you can have 99% of the tax advantages thank you very much!

 

[valleymist]

Might be worth checking with the bank too, I think they like names on the title to match the names on the loan, if the property is being used as security for the loan.

 

[Rolf Latham]

Hiya

getting back to the original question.

Im not an accountant.

Simple test we apply with our clients, think it works most times.

If the property was cash flow positive OR the property was sold, who would the income/gain flow to ?

Its that person that also receives any neg gearing benefit,

Im am very surprised at the stuff that some accountants tell their clients...............might apply in their situation, but often it seems like they have no idea.

For a hubby and wife deal, most lenders wont care if either is on title because there is a derived benefit should the relationship ever go to custard.

ta
rolf

 

[Chromium]

Hiya

getting back to the original question.

Im not an accountant.

Simple test we apply with our clients, think it works most times.

If the property was cash flow positive OR the property was sold, who would the income/gain flow to ?

Its that person that also receives any neg gearing benefit,

Im am very surprised at the stuff that some accountants tell their clients...............might apply in their situation, but often it seems like they have no idea.

For a hubby and wife deal, most lenders wont care if either is on title because there is a derived benefit should the relationship ever go to custard.

ta
rolf

Hi Rolf,

Bank is specifying that they need to see Wife's name on title too as she has put her name on loan application.
Wife has some income (FTB) too which helps in getting us the max possible loan (as much as 80% of property value).

My question now..can they be so specific about the title ownership ? If yes then ...What have they (lender) got to do with how we structure our ownership ?

I am gonna use a proper mortgage broker next time...since this lender is giving me heartbreaks everytime he calls...

 

[Chromium]

Might be worth checking with the bank too, I think they like names on the title to match the names on the loan, if the property is being used as security for the loan.

Hi Valleymist...
Yes that is correct...they WANT to see both names on title to match loans...

But can we then structure that 90/10 or 99/1..??

Does the bank stipulates it has to be 50/50 or a greater share than 10% or 1 % ?

 

[Rolf Latham]

Hiya

Change lenders .............................if possible, dont let lender policy or broker attitude determine your tax and asset protection decisions...........thats like the tail wagging the dog.

The reality is that they are treating your wife like an outside 3rd party guarantor that has no benefit from the loan transaction.

Most lenders now realise thats incorrect , since the family court will decide a derived benefit in the event of a relationship breakup.

ta
rolf

 

[Rob G.]

Accountants like shared title because of National Australia Bank v FCT 1993 ATC 4914

High tax rate person salary sacrifices expenses = deductions in their name

Low tax rate person shares any net rentals tax burden.


Banks like joint loans, then they have recourse to all assets of both. Guarantors have a limit to their exposure.

Cheers,

Rob