Hi folks
my wife and i are expecting a baby. we have a few properties. 2 are in my name and 1 is in her name.
she will not be working for at least a year when she has the baby. her i.p. is currently negative and costs a couple of hundred bucks a month. she will have very little or no income in the next financial year so i'm not sure how much loss she'll be able to claim. When she's not working I will need to cover the repayment shortfall myself.
what can we do in this situation? does the fact that it's my partners property and i'm paying for it mean i can claim the losses on my own tax return next year (as she probably won't even have any income to claim against)? we've never done a combined tax return or anything like that previously.
Alternatively i have the ability to transfer a lump sum of money we have put aside into her "redraw" facility (or a mortgage offset account?) to reduce the interest by 150 or so a month to help cover the costs and minimise the impact on my salary.
any advice appreciated.
Cheers
GlennHi Glenn,
You should put your extra money into an offset account instead of a redraw facility. Obviously if you have non-deductable debt then you should pay this off, or put money into a offset account attached to your PPOR. For threads on redraw vs offset account and the tax implications- see
https://www.propertyinvesting.com/forums/property-investing/help-needed/4336773?
and
https://www.propertyinvesting.com/forums/property-investing/help-needed/4336793?#comment-237756
and
https://www.propertyinvesting.com/forums/property-investing/help-needed/4336793?I could be wrong, but you will only be able to claim the losses from your wifes property if you transfer it to your name. You may be exempt from stamp duty, but you would have to check with a forum member who is an accountant, or preferably get some accounting advice from your accountant (which will cost you money initially but should save you money in the long run so worth the expense).
Cheers,
LukeHi Glenn,
Luke is right about the offset account – dont use a redraw.
Re your wife’s lower taxable income, you can not claim her costs in your tax return, even though you’ve paid for them.
The best way to explain this situation is by example. Say for three consecutive years her salary is $50k, $0k, $50k, and in each of those years her rental loss is $10k. Her taxable income would then be $40k, -$10k, $30k. The taxable income in the final year is only $30k, because you can claim a negative taxable income from the prior year.
So the idea is that you get the benefit in the long run. However, it never works out quite so neatly… say for example her taxable income for three years is $50k, $15k, $50k, and rental losses of $10k for each year. Her taxable income for each year would be $40k, $5k, $40k. For the middle year there’s no tax payable on $15k, so she must claim the loss in that year but will get no taxable advantage.
I wouldn’t advise you to transfer the title in your own name, it would probably cost you as much as the tax advantage you would gain, and it might cause problems in the future.
I agree on using the offset – but has your PPOR loan been paid off yet?
It might also be an ideal time to convert some of your non deductible loans into deductible.
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 folks,
thanks for the advice, all good points.
we're currently renting so there's no PPOR loan that we can pay off.
We lived in her property for 1yr but moved out a few months back (it's too small for us to live in now). Also they're all interest only set ups with a mix of variable and fixed interest.
at this stage we do intend to some day use the lump sum as part of a deposit on the next ppor, so it sounds like offset is the way to go.
***update*** i just rang her home loan provider "rams" and they dont offer offset accounts. Don't know if she would be able to move her loan to another bank due to her low income and decline of equity recently.
What's plan B folks?
I do have the ability to set up an offset on one of my home loans but it wouldn't be as advantageous as reducing her interest as she will have no income to claim a loss on……Rams would probably have huge exit fees too.
Don't know there is much for her to do. She will be making a loss and have no other income so probably a negative taxable income. This is a bit of a waste as she could be earning up to $16,000 pa and pay no tax. If only you could pay her $16,000 pa for something and claim a deduction for it.
Best to talk to your tax advisor who may know your full situation and have a few tricks they can run.
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'll work on it.
Hi Glenn,
Talk to your accountant about paying interest in advance, if you have the means you can pay up you a years interest in advance so that you could make that interest deductible whilst still working.
TLP
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