Hi all. First time poster and first time soon to be investor.
My wife and I are about to purchase a unit as an investment. I am on a low-ish wage on the 30% tax bracket and my wife is a stay at home mum (i.e. no income) until 2014. Due to owning our house outright, we are borrowing 100% of the new place with a 40% LVR. Rent is expected to cover 95% of the interest only component which is the likely scenario for 5 years. Anticipated rent from the investment property is $220 per week (after taking out 6-9% Agent fees).
My questions:
1) For tax/gearing reasons, would it matter if the loan and title are in both names? i.e. as I am earning money and my wife is not, will this reduce the amount of tax benefits?
2) If say we earn $12000 p/a rent, can we under split the income generated between her and me i.e. My tax return claim $6000 income and she does same, meaning no tax due on her share as she is under the tax free threshold? Can we offset ALL the income to her and none to me?
3) On an income of $45-55K, are we able to realise any real benefits of negative gearing based on $220 per week rental income (after agent fees), interest payments of approx $13000 plus say $2000 per annum insurance and council rates?
I hope someone can assist with these questions – we are not going to retire comfortably on my income so this is a strategy to try and have financial gains longer term.
Many thanks!
Hi Radioboy,
Basically any income and expenses are attributed to whoever is on title. So if the title is under your name, then you have all the income and claim all the expenses in your tax returns. If the title is in joint names, then it's split 50/50 your way. You cannot just allocate amounts ad hoc for your own favorable situation.
If negative gearing, then you would normally like to have the property in the name of the higher earner as it is more beneficial, however you need to look at the bigger picture. The reason for investing is twofold. First to get the rental return to a stage where negative gearing no longer exists. Secondly to allow the property to realise capital in future years. If sold at this point then CGT is applicable and if in the name of the higher earner only more tax is paid.
Your wife starting work next year will change the scenario as well.
Cheers
Tom
Thanks Tom.
Could you give me a general idea of how this scenario is or is not ok? Rental income of $1060 per month, minus around $100 per month for agents fees. We are looking at interest only setup of around $975 per month as a buffer zone but will aim to pay the full P&I of about $1341 per month. Add a further $160 per month for rates and insurance. The loan is for $225K, the actual cost of the property will be around $215K.
As a first time investor who has been scared off in the past, I was hoping for expert opinions from those on the forum whether the above scenario is workable or run from the deal. We need to pay a holding deposit of $1000 by Tuesday (is this refundable if we pull out by the way? Our deal is subject to finance/building & pest inspection and November settlement). My income is at the lower end of the scale as per my first post. I want to assume my wife won't go back to work next year so I don't over commit should this be the case.
Thanks in advance.
If you have paid off your PPOR then why not consider a trust structure?
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
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