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Best structure for IP in low income spouse's name

Discussion in 'Property Finance' started by vjsingh, 1st Apr, 2016.

  1. vjsingh

    vjsingh Member

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    Hi all, just stumbled on this forum and blown away by how much great info on here, think I'll be visiting a lot in future.

    Quick question - apologies if answered elsewhere or if the answer should be obvious, I'm quite new to this and having trouble getting my head around it.

    Our PPOR is in my name only, and we have an IP in my wife's name only. My wife is earning below the tax-free threshold currently (has been mostly a stay at home mum for the last 2-3 years and this is likely to be the case for the next couple also) so we're not offsetting the loss we're incurring on the IP (roughly $10k/year, with depreciation) against any tax. We're looking to buy a new PPOR in the near future and convert current PPOR (in my name) to be another IP.

    It seems that transferring the IP in my wife's name into joint names is fraught with danger (from what I've read elsewhere on here), so I'm wondering if there's anything else we can do to minimise the 'wasted' investment expenses against my wife's property and maximise expenses against my property? Or are we stuck with the current arrangements, and just need to make sure that we maximise deductibility for the current soon-to-be-IP (and any future) properties?
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Not much can be done directly as you cannot claim someone else's expenses. Are you able to divert income to your wife somehow?
     
  3. Sonamic

    Sonamic Well-Known Member

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    What is the cashflow like on the IP? Because that will be Income for her name too.

    Once you get the new PPOR and convert your current to IP this will "correct" things a little. Don't chase it purely for Tax Benefits though. Simply plan it better moving forward.

    P.S. Welcome to the forum. :D
     
  4. vjsingh

    vjsingh Member

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    Thanks for the replies, and the welcome.

    I can't see a way to divert income, as my income is a straight salary.

    I had been wondering about somehow paying down the loan on the IP to a point where it was cashflow positive (or at least neutral) using funds from our PPOR, but the rookie error in my thinking was that somehow the interest on the extra borrowings against the PPOR would be tax-deductible for me - as you've pointed out they would still be my wife's expenses so that wouldn't help.

    Cashflow on the IP is well in the negative (with depreciation) unfortunately, running at around a $10k/year loss. My wife has been earning more than that, but below the tax free threshold - so not able to offset any tax and not able to carry forward any net tax loss.

    Frustrating, but as you suggest we will just plan it better moving forward.
     
  5. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Pay off the PPOR debt and then start parking money in the offset on the wife's loan.
     
  6. Greyghost

    Greyghost Well-Known Member

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    Also, what will the current PPR net income/loss look like once you buy a new one and rent this one out? If positive, why not transfer it to your spouse in full and at least it will be a start on absorbing the net loss on the current IP..
    Or
    There would be no stamps on transfer of the Current IP from her to you.
    The only consideration would need to be the capital gains tax at present..
    Has there been growth in the property?
    If so, after applying (assumed) cgt discount, how much would the gain be? If she is on lower tax bracket then maybe the tax liability on transfer to you would be insignificant.
    I know it is just a timing difference of her having tax loss now and once the property becomes positive it will be absorbed, but if that is 5+ years away the tax refund benefits of having $10k rental loss in your name may be worth having now and paying the cgt now..
    This assumes thai the overall cgt is marginal and not significant of course..
     
  7. vjsingh

    vjsingh Member

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    I think the PPOR-turned-IP will be roughly CF neutral, but that's a good point though - worth considering which name it's best in.

    I believe in QLD stamp duty is payable to transfer IPs between spouses, with the exemption only applying to PPORs (which I got from Terry's post here), so I'm looking at well over $10k to do that by my calcs. Capital gain less than $40k currently, so yes I think the tax liability of transfer would not be significant given my wife's low income - could still be worthwhile if I can make up that $10k+ through tax deductions against my income, but it does feel like I'll be trying to play catch-up and a lot could change in the time it takes just to get back to break even. I'm also a bit nervous about other potential implications after reading Terry's post. I'm leaning towards leaving it as is.

    Terry's advice above about paying off the PPOR then parking money in offset against my wife's IP would seem to be the ideal, although I can't see any realistic way of paying off the PPOR anytime soon. You never know though.

    A further semi-related question - it has been suggested that we include my wife on the loan application for our new PPOR so that her income (albeit low) helps with our serviceability, but still purchase the property just in my name. Is this a good idea, or are there potential issues that this may cause in future? If it becomes an IP in future will all rent and expenses be 100% mine? Any other things I need to consider?
     
  8. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Best to leave non owners off the loan if possible as it just creates risk and reduces that person's borrowing capacity.

    You also need to consider control and death.

    Property owned by 1 person can be dealt with by that person without the knowledge of the other. e.g. if wife owns property she could sell, gift, mortgage, lease or will the property away.

    If you don't own a property you cannot leave it in your will.
     
  9. vjsingh

    vjsingh Member

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    Thanks Terry, that makes sense. Certainly good things to consider. Much appreciated.
     
  10. sanj

    sanj Well-Known Member

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    call Terry, ask for specific advice the sit back and make an informed decision.