Hi,
I just leased our 2 bedroom apartment in Melbourne as I have moved to Sydney for my new job. This is our first time becoming an investor as we turned our previously primary residence into an IP. The tenant has moved in, rent is coming in, and I have engaged a real estate agent to manage the property going forward.
The property is currently under joint ownership between me and my wife when we bought it. We didn't work out the share % between us back then. Based on my last read up on ATO, this will automatically fall under 50/50 split between us – is that correct?
Some details below:-
Rent : $425/week.
Nett rental income : $1,722.35 (this was our 1st month rent deposited by the property agent, after deducting all fees). I figured this may reduce slightly as we incurr few more deductions (body corporate fees, council rates, etc) in the future, but let's user this as a guide for now.
Monthly. interest on home loan : Approx. $1,480/month (interest-only)
I have also engaged BMT to do a depreciation schedule on the property. Should get the report soon. I am the primary income earner in the family. My wife is a full time housewife and we have a 2 year old son. Given the strategic location, we intend to keep the property as IP for long-term.
I'm novice when it comes to investing, but it appears that I may potentially enter into a positive gearing position come tax time (to be confirmed when I meet a tax agent). Is this a correct assumption based on the details I provided so far?
I have the following questions:
1) If I'm in a positive gearing position, what would be the best tips to reduce my tax come next year? Should I consider changing the property ownership to my wife to 100%, or 90% to her and 10% to me or something like that? I'm happy to do this as long as it can reduce my overall tax come tax time.
2) If I'm in a negative gearing position (for whatever reason), what would be the best tips to reduce my tax come next year? Should I then do the reverse and transfer the property ownership 100% to me, or 90% to me and 10% to my wife etc?
3) Anything else I should consider to help reduce my tax, maximize returns from the IP going forward?
Any tips/advice from you experts out there would greatly be appreciated.
Cheers.
You have a positive cash flow of $300 ish a month and whilst this is a good result. With depreciation, insurance, your previously stated bills, driving costs to visit your property, advertising for Tennant, any allowances for repairs and maintenance you properly will receive some tax offsets from the depreciation, should at least be 2.5 percent of the properties construction cost. So after depreciation it will null the positive cash flow (from a tax prospective).
Changing the ownership percentages could incur stamp duty costs again.
Keep track of records of when you visit your property for inspections or when you visit your agent etc. anything purchased for the property, any maintenance and repairs to ensure you can maximize your return going forward.
If its a brand new apartment or close to your depreciation might be a lot higher.
Thanks wilko for your reply and tips. It's a 3+ year old unit and BMT told me I can still get a decent depreciation out of it. I forgot to mentioned the insurance. I spent $277 on a landlord insurance for the property.
Never thought I could claim those expenses insured while visiting the property. Will definitely keep this in mind. Will keep those receipts as well tax purpose as well.
I was told that in Victoria a transfer between husband and wife will not incur a stamp duty. Not sure if the regulations has change since then though. I'm thinking, if the tax implication is not that much come tax time, I'd probably skip the ownership transfer bit to avoid all that paperwork hassle.
You can transfer % but I think if it is done as a tax avoidance strategy you may have difficulty.
I don't think you will be too positive (not including depreciation).
You need to deduct interest, insurance, body corp, water, council rates, maintenance, property manager fees.
Add that up and see if it's higher than the net rent.
You then halve the amount to add to your tax (half yours, half your wife's)
If changing ownership consider the long term effect (selling and CGT for example).
Thanks Catalyst. I will get my property manager to produce a net income vs estimated outgoing expenses for the property factoring some items you described above.
Will file my tax with an agent this Sunday, so I'll ask him for full list of what I can claim from the IP, then use that as a guide going forward.
Like you said, if positive I only have to pay tax on half the nett profit. Will also consider the selling and CGT consideration in the future too as you suggested.
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