My spouse and I are considering purchasing a negatively geared rental property. We understand that the maximum benefit of the negative gearing is gained if the property is held in the name of the high income earner but this will be a problem when the capital gain is made or if the property becomes positively geared. How do you guys decide? What point do you give the most weight to. I know this would be easier if the property was positively geared but can’t find one these days. Oh and just to add to the confusion the high income earner is my spouse. In a few years we will start a family and she will give up work for a year or two but then return and I will give up work to look after the children.
Personally, I deal with the nasty side, where what if’s occur. I dont advocate putting a property in one name.
You can argue in court that it was bought by both and you were married etc…if there was a bust up and there was a mortgage….the bank goes after …..
If someone dies?
Sorry but there are so many personal issues you need to consider, so go seek some advice.
I have seen some very interesting situations in property disputes…
cheers
Elves
Nazza,
Crunching the numbers for each possible outcome will give you an idea of which is the most likely. It will involve some guess work but after working through a few scenarios you may see a trend. A lot depends on your holding time and how long it will be negatively geared.
There is a way to have a resonable each way bet which is extremely flexible when the low income earner becomes the high income earner as well as being an excellent method of shifting deductions to the high income earner and income to the low income earner. It is based on a 1993 case NAB v FCT. Bascially the FBT act creates a “legal fiction” that the expenses of an employee’s spouse are the employee’s so if they were deductible to the employee’s spouse the otherwise deductible rule applies to make them an exempt Fringe Benefit. An example of how this would work in your case would be that you buy the property in joint names but your spouse salary sacrifices all the cash flow expenses. Then each of you only include in your income tax returns the rent, depreciation, amortised borrowing expenses and maybe some travel km method. When your spouse leaves work you arrange to do the salary sacrifice in your name, then change back when your spouse returns to work. It is brilliantly flexible but hard to get your employer to cooperate because they are frightened that the ATO will come back onto them. Your employer can get an ATO ruling to put his or her mind at rest. Guidelines on how to get this ruling and a calculator to work out how much tax you will save are at http://www.bantacs.com.au This concept works for both negatively and positively geared properties.
As the property is held in Joint names you don’t have to worry about a property settlement dispute and the CGT is still split equally.Julia
I have spoken to my boss about this and he said he would have to pay FBT @ 48.5% & I am not quite in that tax bracket yet.
Nazza,
The otherwise deductible rule in subsection 52 makes the benefit exempt so your employer is not subject to FBT at all. Subsection 138(3) also exempts your spouses share of any joint expenses as also otherwise deductible to you.Julia
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