Hi everyone,
My wife and I have just bought a block of land and are going to built a brand new house to use as our PPOR.
We are yet to buy an investment property so this is the beginning of our property investment career so to speak.
My question is, whose name should we put the land, house and loan into?
Which of these dictate whose income the tax deductions and rental income are added/deducted to if we converted it into an investment property down the track…?
Thanks for your help investors…
Fudge111
Hiya
The percentage ownership on title dictates who can claim investment expenses. So if it’s 50/50 – the claims are 50/50. If it’s owned 99/1 then claims are 99/1.
What’s best? Depends on what your accountant advises. Where are you based?
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Hi Jamie,
I am based in Melbourne…
Hi Fudge
As Jamie suggests your accountant is the best person to talk to as there are plenty of variables. However a couple of things to consider from a tax point of view are:
– Do you and your wife have different taxable incomes or are they similar?
– When you PPOR eventually becomes an investment, do you plan to rent it out or perhaps develop/ subdivide the property. The income from these different scenarios can be quite different
– Will it be positively or negatively geared? From a tax point of view, you would want to have a positively geared prepared in the name of the spouse with the lowest taxable income and vice versa for a negatively geared property, you would want to have that in the name of the spouse with the highest income so they can take advantage of the losses to reduce their income. If your incomes are similar, it might be best to have the property in joint names. Hindsight is a wonderful thing in this regard
– An interest offset account may give you a bit of flexibility in terms of interest deductions that you can claim on the property in the futureHope this helps
Your lawyer would be the best person to talk to as this is a legal matter with far reachin consequences involving estate planning, asset protection, family law and property law etc.
I generally favour ownership in one name, usually the spouse least at risk of being sued. This not ony provides greater asset protection on any future bankruptcy (or the non owner) but also preserves borrowing capacity and reduces risk of having both on the loan.
In Vic there is no stamp duty on transfers between spouses, so if equity builds up and you do move out A could sell it to B for full market value with no duty or CGT and deductible loans thereby increased.
But not having your name on title creates other issues – you cannot leave the property in your will for example. But this may be covered by each buying separate properties
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 Terryw and Scotty,
with regard to the offset account, does that enable you to claim deductions on your taxable income, or is it merely a saving on the interest you are paying on the loan and therefore increasing cash flow to the property?
Cheers fudge
Offset just reduces interest payable on the loan it is offsetting.
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 Fudge,
The reason that I suggested the offset account was if you choose to buy another property in the future i.e. when your current PPOR becomes an investment, if you have an offset account in place, you can use the excess funds in that offset account to purchase your new PPOR, thus maximising the deductible interest that’s left behind on the investment loan. This way the funds don’t become tainted with any non-deductible debts. The offset account just adds that flexibility.
A lot of homes which start out as PPOR’s often become investment properties when the owners choose to move houses. If there is no offset in place, people get caught out when they redraw on their existing loan to purchase the new property. Because the redraw funds from the existing loan have been used to buy their new PPOR they become non-deductible.
Thanks Scotty,
That is great advice. Will definitely ensure we put the interest offset account into place.
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