Thanks in advance for any advice on my matter. It saddens me that we paid $450 for a financial planning consultant with Chan and Naylor over a year ago and were basically told there wasn't much we could do, to help us change our situation without spending alot of money in stamp duty taxes to do so. I've since learnt that may not be the case, and am desperate for advice as I feel so ripped off when it comes to tax time.
Situation:
Investment property in Joint Tenancy 50/50% husband and I.
Husband is the main income earner. I am currently part time and will be on maternity leave in October at which point my income will be zero for well over a year, and after that I expect I will be part time again so still a low income earner.We are losing out in terms of tax advantages and want to make changes so we no longer lose out.
Our tax returns for the past 2 years indicate we are entitled to claim 16k against our investment property each year on average. So husband gets 8k back via his return, and I get bugger all. The first year I was on maternity leave so I got $0. You can imagine my pain at having to pay near $300 for my tax return to get processed given I wasn't entitled to anything. The second year I started working late into the tax year and paid $1200 tax, and that is how much I got back (again, there was a hefty accounting fee to be taken off that gain). Next year I will get $0 back again, which is going to be a loss of 8k!! I can't let this go on, there has to be a way to rectify this as we plan to hold onto this investment property for at least 5 years (at least).
Solution? We can't transfer the property into the husbands name solely as his income streams and rent income streams alone won't get bank approval which I have confirmed today with my broker. (I also have a property in my name only which we live in, so the bank have used that along with my part time income in order for us to have gained bank approval for the investment property in the first place)
What other option do we have?
Can anyone tell me a little bit more about Tenants in Common in terms of tax? If we were to put husbands share as 99% and my share as 1%, my bank broker tells me we should have no problem making that change to our bank loan but he isn't sure if this addresses our tax claiming issue.
And aside from Tenants in Common, is there any other solution we can look at?
Thank you SO much if you can advise me on what we should do.
I am suprised your Broker can find a solution to such an issue.
You Transfer the property into his name and then go as Guarantor for the new loan.
Richard Taylor | Australia's leading private lender
It is very hard to change the structure once you have purchased a property without incurring stamp duty and capital gains tax.
I was in a similar situation and sold my negatively geared property and had to kick a tenant out
as negative gearing also affects centre link and family office payments as they deem the lose as income to work out your payments.
Even though you can't get a tax refund and they do it on the whole 50% share of the loss you claim
even though you are lucky to get even 25% back as a tax return if you were working.Thanks Richard
Just a thought, would it cost more to change the ownership to my husbands name if I was able to go Guarantor? (like total fees with bank/settlement agents etc) as opposed to changing the ownership to Tenants in Common 99%/1%? And now I am also wondering, would tenants in common be better if we wanted to change the percentage ownership one day should either my income increase dramatically to make it advantageous to put it to 50%/50%, or if we want to reduce capital gains by say changing the ownership to 99% my share and 1/% husbands if I remain the lower income earner? If that's even legal?
With married couples (or defacto) most banks allow one name on title and both names on the loan. So the loan shouldn't be an issue.
However, transferring a property now will be complicated. BTW which state is the proeprty in? If in VIC then you may be able to do so without stamp duty, if elsewhere then you may have to pay stamp duty on the amount transferred based on market rates. This is likely to be many thousands of $$$.
Then since you are selling your share to your husband there will be a CGT event. If you are on a low income the CGT may not be much, but this will depend on how big a gain is.
You will also need to exit the loan and reapply again so there may be exit fees and app fees again – but your bank may waive these if you are lucky. But there are also govt charges such as discharge of mortgage, transfer etc a few hundred. I hope the LVR is above 80% of LMI may apply.
You will probably need a lawyer or conveyancer too. $1000 est.
On the plus side, the value has probably risen so your husabnd may be even able to borrow more to buy your share and this extra money released can go onto your home loan to save you interest as well as give him a higher tax return.
But you also need to consider the long term issues. How long will you be on a low income and will all these costs justifiy the change. If you sell later on the CGT may be much more and will all go to a person already on a high income.
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
hi can anybody please help me? i dont know how to post my question on this site to create a topic and get advice. its just sitting in the 'my subscriptions' found on the right hand site in the purple coloumb!!!
Duckster,
Yes that is another thing I found out the hard way, I owed the Government money for excess family tax benefits claimed because I had no idea they took into account investment losses! I've since arranged to have $0 paid to me in family benefits so it be can worked out at tax time. I still can't get my head around that whole calculation.Hi Terry,
Thanks for your post.
We live in WA.
Does stamp duty apply if we change from Joint Tenancy to Tenants in Common do you know? The property is valued at approximately 500k and the loan amount is 456k. My broker took this into account when calculating whether Westpac would approve my husbands loan.I expect I will be a low income earner until 2013 at least. So between now and then if we keep it under our current arrangement and I keep getting approx 8k per annum back via tax as my return, I guess that means I will have lost approx 24k that my husband could have made. The investment property is an interest only loan too which we have no intention of reducing so in terms of it increasing in equity, maybe CGT won't be so high when we do eventually sell? We use our tax refund to reduce our PPOR.
Yes, stamp duty would probably apply from changing from JT tp JIC. You also want to change the % of ownership too. There may be an exemption between spouses. Look in the duties Act or ring up the Office of State Revenue and they should be able to tell you.
At $456/$500 = 91% LVR. I think the LMI fee will be very large. They may give you a portion back on the LMI you paid if it was recent, but probably it was more than a year ago so I don't like your chances.
All up the change will probably cost a fortune.
This goes to show (others) the importance of seeking out good advice before buying property.
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
Here is the Duties Act WA s97
Looks like the exemption is only for transfers between spouses for owner occupied properties.
http://www.austlii.edu.au/au/legis/wa/consol_act/da200893/s97.html
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
Stamp duty will be nearly $7,000
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
Terry, we didn't pay mortgage insurance when we financed the loans in 2006. I wonder if MI will apply. I'll check with my broker. Maybe it doesn't apply because of the equity I have in my PPOR? Which is approx 210K. Hmm, I will follow that up.
So if I have understood correctly, you are thinking we will have to pay 7k stamp duty to change it to tenants in common and may be up for mortgage insurance. Based on the 7k value only, I'm thinking it's worth our while making the change once I stop being an income earner? Do you agree?
And YES, anyone wanting to buy into properties should get some great advice before making the step. As first time investors, we made the biggest mistake EVER by asking our then regular accountant for advise on how we should set it up. He was a great business accountant for our standard work tax returns but really didn't have experience in property investing and we didn't know any better. We assumed all accountants were skilled in all aspects.
If you are using other property too, then you may get away from the LMI issue.
There are other costs too as I mentioned.
Lawyer
Loan
Govt charges
CGTYou will have to do some calculations and see if by changing it over and incurring these costs then how long will it take to recoup these costs. Then you have to work out if it is worth it.
Also remember tot ake into account future costs such as selling in 5 years time with a $100,000 Capital Gain. If You don't think there will be capital growth then maybe you should conside whether to keep it at all.
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
Thanks Terry,
I will discuss with hubby and look into the other costs before working out what to do. Thanks again so much for your helpHi Everyone, can someone confirm what costs are involved if you want to change the percentage of interest, eg. from 95% husband to 95% wife? Thank you in advance.
That may not be a good idea!
Costs
tax advice
legal advice
conveyancing
discharge mortgage
new loan
CGT and
stamp dutyTerryw | 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
You must be logged in to reply to this topic. If you don't have an account, you can register here.
