We are looking to extract ourselves from a bit of a mess, and would like to call on the collective wisdom here.First a bit of history:
- 1988 – Get ourselves an accountant (one of the big 4/5/6);
- Late 93, early 94 – purchase 3 negatively geared IPs to reduce tax on my income (wife working but not for $, ie raising kids)
- Titles of IPs established by broker in both our names, ie wife and I; 3 x loans set up with purpose of funding purchase of IPs but also included our home mortgage; tax claimed in my name only – always the original intention;
- 1996 – decide to refinance due to difficulty re apportioning 3 loans across 4 properties, and splitting off non-deductible portion. Capitalising interest offered by broker, however we don’t feel this is totally above board although there were no tax rulings at the time. Instead we pay out mortgage on own home to give us only tax-deductible debt remaining. 2 x loans set up across 3 properties by broker, with 1 loan in my name only;
- 2003 – informed by accountant (same firm) that it is not acceptable to have titles in both names and claim deduction in only 1 name, ie mine. We have been blissfully unaware that this was a requirement (after 10 years of tax returns) – we thought it was sufficient for the purpose of the loan to be set correctly (which it was);
- Present – looking at options to fix the situation (and for a new accountant) [grrr]
So far, options include:
- transferring titles to my name only, pay SD and CGT (many $Ks);
- using ‘otherwise deductible’ provisions and salary sacrifice, although my salary packaging makes this difficult;
- selling 1 to 3 IPs and pay CGT;
- doing nothing, and not sleeping at night;
Any creative thoughts out there?
Pls ignore:
– the rationale for setting up negatively geared IPs in the first place – it was 10 years ago, there didn’t seem then to be any alternatives.
– our accountants ‘prompt’ response to the situation.Thanks
We have had a similar prob with joint names on IP’s. Luckily we got better advice year 2 and since then each new IP is in either one or the other not both names.
Other options are trusts for new purchases but thats a few K to set up and then $1000.00-1500.00 to read trust deeds by lender and can add as much as 2 weeks to final approval which in some cases is critical.
What city are you in?
DD
Don’t sweat the small stuff,and it’s all small stuff!!
I’m in Canberra.The IPs are in Qld.
Steve
Blueroc,
I believe the “capitalising of interest” that many property investors were doing only went to court for a ruling last year. I read somewhere that the NZ Tax Dept (IRD) was watching the outcome of the Australian Tax Office court case closely. Try checking the ATO’s website for some info.Regarding property in joint names. When property is held in joint names it is treated as a partnership. It is generally accepted that the splitting of income (or in your case – losses) would be 50/50 unless stated otherwise.
Remember, partnership agreements do not have to be 50/50. You could look at formalising a partnership agreement and use say 80/20.
Another suggestion is you look at refinancing and purchasing more IP’s.
If you leave the properties in joint names and choose to sell one or more of the Ip’s to reduce the loans the CGT and any future taxable income will continue to be split between you and your wife thus reducing your overall tax.
Nb:”Can anyone tell us if the capital gains from the sale of one property can be deferred or transferred when holding multiple properties”. – I heard somewhere this is done but can’t remember if this was Australia or not.
And a further word of advice, don’t lose any sleep over this, it’s not worth the stress.
Cheers
JeffJeff, thanks.
A few comments.
Capitalising the interest doesn’t matter to us now as we paid out the non-deductible part of the loan.
We do have a formal partnership from the mid 80’s for other business, ie not related to IPs (not sure if that is relevant or useful to know).
Our problem has come to the fore as we were looking to refinance (having built reasonable equity) but still offset costs against my income only. Of course, we will be forced to refinance if the titles change, and pay SD and CGT costs.
I have been told that there are about a dozen legal ways to accomplish what we are attempting to do, the last of which is to pay SD, etc. I just don’t have the knowledge of these, although I believe they may be related to structuring.
Steve
you could always go and see that heinously expensive structuring guy in melbourne that wrote wealth guardian with Steve. Just make sure y is equal to or greater than x, if
$x is the cost of structure, and y is the tax you save or offsetjoy to the world
transferring titles to my name only, pay SD and CGThttp://www.osr.qld.gov.au/taxes/duties/transfer_partnerships_faq.htm
This might help if you head down the transferring of titles way.
Don’t lose sleep over, investments shouldn’t be done for tax benefits alone and it sounds like you have made the gains you were probably hoping to achieve. Sure, the tax benenfits are an added bonus but should be the be all and end all of investing. I guess the bit your losing sleep over is the bill you may get, get onto a new accountant ASAP and see what your options are.
Having said that, if you can do salary packaging using the “otherwsie deductible” in the future, then that would be your cheapest way to go. It’s a big “if” I guess, it depends upon your employer. There was a thread on it once, but I’m not sure how I can look for it while in this message replying and it sounds like you know all about it anyway.
Otherwise I’d simply hold them, start paying the tax correctly, and see a different accountant regarding what to do about previous tax returns.
Good Luck
PKSteve
Are you not sleeping at night because of the future and how to have it set up correctly, or because of the possibility of an ATO audit at which point you’ll be in the p**?
Also, when you paid out the loan on your PPOR, did you do it from the refinance monies (ie tfr debt from PPOR to IP) or by a lump sum from elsewhere? If it was by tfr debt due to refinance, it gets uglier…..
If you don’t have a good solicitor in Canberra, I recommend Francis Low from National Business Lawyers.
For an accountant I have seen recommended on here (and from other business acquaintences) Tony Commisso http://www.acca.com.au.Good luck.
Cheers
MelStep one: Drop your BIG FOUR accountant – and NEVER use one of these companies to advise on property investing again.
Look up Dale Gatherum-Goss. He’s an excellent investment accountant. Tomy Commisso is good, but can be a bit too aggressive for some peoples’ taste
Cheers,
Aceyducey
Originally posted by Aceyducey:
Look up Dale Gatherum-Goss. He’s an excellent investment accountant. Tomy Commisso is good, but can be a bit too aggressive for some peoples’ tasteAcey, can you explain too aggressive? I was thinking of switching to see Tony, but am unsure what you are suggesting?
Cheers
Mel
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