Hello
Just seeking advice of whom to purchase a +CF property under. We have a number of properties under my name solely (the working husband), these properties were -CF and have recently turned positive, we intend to purchase a +CF property, should this be under my Wifes name as she is not working and if under my name the positive cashflow may push me into the next tax bracket.
If this is fine, we plan to pay for the property by redrawing on our primary residence, the loan on the residence is in my name only, would the interest charged on this redrawn portion be deductible considering the to be purchased property is in my wifes name??
I trust this is not a stupid question?!Regards
RMRudy,
This is an age-old question that really only you (or your accountant) can answer, because there’s lots of variables to consider. But a few things to keep in mind are:
– People often get scared of getting pushed into the next tax bracket, but this is really not an issue: since you only get taxed at the higher rate on the extra income, it’s not like it puts you in a worse position or anything.
– Consider the long term: it may be tax-advantageous to have properties in your name now, but in 10 years when they may be quite CF+, you may regret it.
– Also consider Family Tax (including the new bonuses) – can be a good reason to keep one partner’s income at $0.
Cheers,
MickRudy,
G’day and welcome to the forum.
I would recommend you have a look at the properties as an entity….what you have there is the classic ‘cordial mix’ that the SS Qld lady often refers to…have a read of some of her books.
Unless the new +CF is outrageously positive, the overall net effect of all of the properties will still be a loss.
Over-riding all of this, I’d be far more concerned about the large Land Tax burden you are setting yourself up for with all the others in your name only. (See separate thread on this subject).
The small positive cashflows will be absolutely swamped by the extra burdens imposed by your State’s revenue office. For this reason alone, I would humbly suggest – if you are the highest earner – to place the property in any ratio other than 100% in your name only. 99/1 is OK, 98/2 is OK etc…’tenants in common’.
On the same theme, I’d also have a serious look at how much you pay for Land Tax vs stamp duty to switch them over to a better % structure.
Make sense ??
Cheers,
Dazzling
“Go hard or go home”
Rudy,
OK, I missed the second part of your question.
The ATO simply asks the question “What was the purpose of the loan and, if it was for investment, does the investment generate assessable income ??”
In your circumstances the loan’s intent is for purchasing an income producing property and hence all of the interest component for that particular loan is deductible…although in all of the official ATO literature, they always quote it as “may’ be deductible. Legally covering their bums just in case there is something squirrelly about the individual tax payers circumstances I suppose.
Cheers,
Dazzling
“Go hard or go home”
Hi Dazzling
Thanks for the comments. If you don’t mind, could you please elaborate on your comment regarding “if you are the highest earner – to place the property in any ratio other than 100% in your name only. 99/1 is OK, 98/2 is OK etc…’tenants in common’.”
Thanks a ton
Regards
RudyOriginally posted by Dazzling:Rudy,
G’day and welcome to the forum.
I would recommend you have a look at the properties as an entity….what you have there is the classic ‘cordial mix’ that the SS Qld lady often refers to…have a read of some of her books.
Unless the new +CF is outrageously positive, the overall net effect of all of the properties will still be a loss.
Over-riding all of this, I’d be far more concerned about the large Land Tax burden you are setting yourself up for with all the others in your name only. (See separate thread on this subject).
The small positive cashflows will be absolutely swamped by the extra burdens imposed by your State’s revenue office. For this reason alone, I would humbly suggest – if you are the highest earner – to place the property in any ratio other than 100% in your name only. 99/1 is OK, 98/2 is OK etc…’tenants in common’.
On the same theme, I’d also have a serious look at how much you pay for Land Tax vs stamp duty to switch them over to a better % structure.
Make sense ??
Cheers,
Dazzling
“Go hard or go home”
Things to consider:
– look at using a discretionary trust, so income can be attributed to your wife, if and when you require
-Is your wife working? If not how will she get finance? In some situations spouses can go on the loan without being on the title.
-Land tax is progressive. So the more you own, the more % you will have to pay.
– If you get a loan in your wife’s name and you lend her money from your loan, you will need a written loan agreement so she can claim the interest. You may be able to get away without one, but just in case….
– the taxable income would probably be minimal in the first few years, CGT may be a larger problem if you intend to sell later.Terryw
Discover Home Loans
Mortgage Broker
North Sydney
Click below to email meTerryw | 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
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