HEEEEEELP! What name should I put on my investment property????
I am a new to the property investing and my wife and I have been looking for an investment property for capital growth and tax advantages and I have found one we really liked. The property itself is only 12 months old and the asking price is around $340k. Only problem is I am not sure what name should we put on the investment property. I am currently earning $60k a year and my wife is going back to uni which means she only earns around $5000 a year on her causal job. I understand if the investment property is to be under my name only I will benefit from the negative gearing point of view but when it comes to sell it, I will also pay a large CGT as well. I also have thought about putting the investment property in joint names but my friend says it is better to be put in tenants in common if you are the higher income earner and your situation is not likely to change within the 5 years time into the future.
I run a small importing business which has net profit of about $60k a year, but a friend of mine who are also in business has advised me it is best not to putting the investment property in my name sole due to the fact just in case somebody sues my business and I will lose the lot. So putting the investment property solely in my wife's name will protect myself against any future law suit (I don't think it is likely but who knows now a days). If I put the investment property solely in my wife's name I will lose the tax advantage due to the fact she doesn't earn enough money. We have a mortgage of $330000 with equity of $300000 in our own house which has joint names.
My question is what is the differences in buying the property in joint tenants and tenants in common if ownership is 50/50 in tenants in common? In our situation would it be better to put say 1% in her name and 99% in my name or vis versa? What will be a better arrangement in our situation if none of the above works out finely?
Any help from the more experienced will be greatly appreciated.
Best regards
V
The property we are currently looking will be negatively geared with an estimated out of pocket expense of $8000 a year before deprecications but including all other costs.
Thanks again.
V
There are a few choices:
Your name
Her name
Both names
Trust
Company
Superfund.Since you run a small business, as a sole trader (which is dangerous) you run the risk of being sued. You could buy in the wife's name or in a discretionary trust for greater asset protection. The downside with trusts is the large loss will not reduce you tax, but the upside is that when a profit is made down the track it can be distributed in a tax effective manner.
You could buy in your name now, but later when you sell you will be hit with all the CGT, and you will have asset protection issues – but at least you will save tax.
I am surprised you are not running your business through a company which will give you asset protection and allow you to employ the wife and to save tax. Maybe this is a solution – change to a company and then buy it in joint names.
You just have to do some scenario calculations.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Away from the name to put on the Title when you acquire this property (and Terry has outlined some alternatives) are you sure that your serviceability will be sufficient to gear to this level of borrowing.
Without limited information it is difficult to provide an exact answer but seems to be some potential borrowing issues.
Just make sure your Broker structures it correctly to avoid any future issues.Richard Taylor | Australia's leading private lender
Thanks heaps guys for your advise, I should have given more information about our current situation. So here they are:
My business is actually in painting, I am an artist in oil and glass painting, the main reasons I am not starting as an company is due to the fact I am the only person who can paint and I don't own a shop either, I don't have any staffs or any marketing strategies, when people wants my work they will ring me to do the order and when the work is finished they will come to pick up the finished work. Sales are all done through private deals to many art galleries and small arts studios, there is no overheads apart from brushes and papers:) And the interesting thing is I don't deal with buyers directly, I only deal with dealers directly. I do my painting in the house and I sell them to galleries and studios when they are short of stocks. Therefore the chances of I am getting sued by the customer is very unlikely due to the fact we don't sign any contracts or have any deadlines. Although the business is stable, the bucks stops there, I can probably doing painting till I am 75 year old but unless I am become the next Da Vinci the chances of my net business income increasing soon is not likely to change a lot due to the fact I can only do so many paintings per week.
In terms of borrowing issue I have spoken to a broker and based on my current income I can borrow $250000 for the investment property on a interest only base, this was based on the rental returns of $300 per week in the area I am going to buy, at the moment the average rental returns for a similar property is about $330. I have $40000 in savings and my wife is willing to putting down $100000 in savings to cover the shortfall which leaves as an mortgage of $250000 in investment property.
My wife is happy no matter what names is to be putting on the investment property but we both want to get the best result out of this. Since this is truly the very first investment property we are going to have we would appreciate greatly any advise given here.
Best regards
V
Some points
What about the splitting of income with your wife. You earn $60k, she earns $5k. You are wasting her tax free threshold as she can earn up t $16k without paying tax.You also say you have a mortgage of $300k. If so I would not be putting down a cash deposit on the investment property. I would put this cash on the home loan and then reborrow it to use for the investment.
If you set your business up through a trust or a company with the shares owned by a trust you could divert money to your IP trust so that any loss is offset and you save yourself tax.
Then you only have to consider the land tax issues
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Totally agree with Terry. Why oh why would you use your savings as a deposit for the new property.
Running the business through a Trust structure will give you the flexibility each year to decide which one of the beneficiaries receives the income distribution and you certainly would be able to manage your Tax issues.
Has this Broker ever purchased an investment property as it doesnt sound like his advice is all that sound.
Even with your wife paying no tax the savings should be sitting in an offset account rather than separate savings accounts.
Richard Taylor | Australia's leading private lender
Thanks heaps guys for your advise, the more I read your comments the more I am thinking there is some fundamental problems with the advise I was given. The advise comes from an friend of mine which may have made my judgement blurred. Thanks heaps again and see you guys around.
Best regards
V
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