I would like to know what the pro’s and cons are of putting an IP in my name only, (the loan is all in my name), or me and my partners names. I am thinking that when I sell the profit will be split so tax is minimised. Are there any other factors to consider?
Hi Mikeej,
A good website is http://www.chrisbatten.com.au on who’s name etc. for IP’s. I’ve quickly copied and pasted this from his site just now – hope it helps.
Quote from Chrisbatton.com.au;
“The majority of rental property acquisitions occur in the name of individuals. Despite the large number of disadvantages that this type of structure attracts it is still the most popular.The following reasons are why you should avoid acquiring a rental property in your own name.
There is NO flexibility in relation to the distribution of income.
There is NO flexibility in relation to the distribution of capital.
The property may be poisoned and therefore not able to be transferred to a superfund.
The property is exposed to creditors, …”
End Quote.Chriso (:
Property may be poisoned [
]. Oh no, a doctor, quick, my house is dying[]I’m guessing that this term refers to the not being able to buy real estate from superfund members? Why would a family trust be any different, surely that would still be seen not to be at arms length?
Anyone [?]
Cheers
MelHi mikeej[
]To minimise tax the title can be split unevenly, for instance 20% in one name and 80% in the other.
If the property is negative geared then the 80% can be in the name of the highest income earner,if positive geared the 80% can be in the name of the lowest income earner. this split may be as high as 99% – 1% however the ATO may veiw this in some cases as as tax avoidance.
The terminoligy used for this is “Tennants in common”.In some states if a breakup between the partners occurs then the property is deemed to be owned equally by the family law court, a prenuptual type of agreement may be arranged using a family court solicitor beforehand if you feel it is warranted.
However my understanding is that if the loan is in your name then the bank would want the title to be in your name for security against the loan. There are morgage brokers on the site who could clarify this situation if I am wrong.
Regards
Bryce Inglis
[email protected]
http://www.ipal.com.auHi Mikeej,
I would certainly speak to an accountant who knows property investment. It depends on your strategy too, whether buy/sell or buy/hold. We had a meeting with our accountant only last week and realised a couple of our properties would have been more beneficial to have been in partner’s name only as highest earner, wrong advice from a previous accountant. We are just selling a 99/1 property which was correctly set up some years ago.
Anna
Hi,
In regards to tenants in common, unless you have a legitimate reason for having a split share of 99%/1% Bryce is correct – the ATO will most likely see this as an avoidance of tax.
I have loans in both names and titles in one name on some of my properties – I dont think the bank mentioned anything to us about that actually.
J
“Success comes from having the proper aim as well as the right ammunition”
Do I have to put her name on when I buy it or can I add it later if I want to?
You can add it later, but I think stamp duty is applicable. Talk to your accountant/solicitor on this one, they’ll give you a definite.
Cheers
MelIf you buy a property with someone who is not your partner (wife/husband or defacto) in my experience, in the absence of any contrary arrangement described in a written agreement between the partners at the time of purchase (emails between the parties involved probably nowadays are sufficient to establish the date of such agreements), the tax department regards the relative share of the property (so equity + borrowings) of each party as being an indicator as to who should declare the profits. So if you had a property of $250K, including establishment costs like stamp duty, one person puts up the deposit of $50,000, you jointly get a mortgage of $200K, paid off $50,000 by the person with the deposit and $150,000 by the person who didn’t contribute any deposit, the ATO are likely to say the profit should be split 40%:60%
Howdy,
As a broker I always try to make sure that people have had proper tax advice as well as hearing the loan options for this type of scenario. I personally believe trust funds are the way to go for both maximising returns and asset protection long term.
From a lending perspective borrowing in individual names can help couples to acquire a lot more negatively geared or neutrally geared investment property as they are not jointly liable for the other partners debt plus refinancing and reorganising loans can be a lot easier. With positively geared property serviceability is not such a big issue. Lenders will lend to borrowers who are not on the certificate of title provided they can see that they intend to receive a benefit, eg part of the rental income. Independent legal and financial advice may also be a requirement with lenders in certain scenarios, and is a good idea in any case.
As I said, you have to weigh up the pros and cons from both the accountants advice re tax saving techniques and the broker’s options for loan structures and availability to work out the best opiton for your investing plans.
Hope that helps.
[
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Mel
[email protected]
]. Oh no, a doctor, quick, my house is dying[
]
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