All Topics / Legal & Accounting / Renting PPoR subject to informal shared ownership agreement

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  • Profile photo of animamundianimamundi
    Participant
    @animamundi
    Join Date: 2008
    Post Count: 16

    I purchased my first property on January 7, 2009 making use of the FHOG.  I made an informal agreement with three other parties (one of whom is my de facto spouse) whereby each of us made an equal contribution to the deposit and purchase costs and all subsequent loan repayments ($1200/fortnight/4 parties=$300/pp/fortnight).  The property has been the PPoR for all of us since its purchase.

    The title is in my name only, as is the loan.  We understand that for all legal and taxation purposes the property is held to be my asset and that the loan is my liability.  We intend to change the existing ownership structure to something that reflects joint ownership using the most cost efficient means possible in future.

    I had intended to claim the contributions of the other three parties as rental income from 7 January, 2010 for the tax benefits but now understand that this would make the property subject to CGT on sale.

    My spouse and I are moving interstate for work this month and will likely be away for <6 years.  We do not plan to purchase a property interstate.  The other two parties to the agreement will continue to reside in the property and we will all continue to contribute to repayments.  We have agreed that the remaining parties will pay $200/fortnight for the full use of the property.

    I now plan to claim the contributions of the remaining two parties as rental income from the date of my departure.  This contribution will be 2x$300+$200/fortnight.  I understand that I will not need to pay CGT on sale so long as my period of absence is <6 years and I don't purchase another property during my absence.

    I would be grateful to anyone who can sanity check the following:

    * Is the intended strategy in the paragraph above optimal for my situation as described?
    * What steps do I need to take to demonstrate that the property is being rented to the residing parties during my period of absence interstate?
    * Is my intention to forego the tax benefit of renting the property from 7 January up until the period of my absence in order to preserve the property's status as my PPoR the best approach?
    * If I return to the property within 6 years then move interstate again, is there a minimum period for which I need to reside in the property in order to qualify a second term of <6 years away without CGT on sale?
     
    And for bonus points:

    * What are the key implications of my informal shared ownership agreement as it currently exists?
    * What options do we have for restructuring the ownership agreement to reflect joint ownership as cost effectively as possible?
    * If we don't restructure the ownership agreement and the property is sold, how best can I share any profits of sale equally amongst all parties?

    Thanks very much in advance!

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    for starters
    see s118-145 ITAA 1997

    and

    ATO ID 2010/193   
    Rental property expenses: co-owner rents the property    
    http://law.ato.gov.au/atolaw/view.htm?locid=%27AID/AID2010193%27&PiT=99991231235958

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of animamundianimamundi
    Participant
    @animamundi
    Join Date: 2008
    Post Count: 16

    Terryw, thanks for the resources.

    Should I infer from your first link that the written co-ownership agreement that I have with my other three partners IS legally recognised, even though the title and mortgage are in my name alone?

    Regarding the second link, how should the the rental income be calculated?  Would it be 2x$300(2 party share of the loan repayment)+$100(agreed cost for full use of the property in my absence) or just the extra $100?

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    You could argue that you are trustee for the other 2. This is what you are really. But you may have trouble proving this to the satisfaction of the office of state revenue – if you could you would avoid stamp duty on transferring their shares of the others back to their names.

    Another option is to make a declaration of trust now, leave it in your name with you as trustee for the other 2, For tax purposes it would be considered to be each as owning their shares. If you make a new declaration of trust then stamp duty would apply.

    For the rent, i would think you could divide the market rent by 3 and you take your share

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

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