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Claiming losses on property in spouse's name?

Discussion in 'Accounting & Tax' started by TheRewster, 5th Aug, 2016.

  1. TheRewster

    TheRewster Member

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    Hi all,

    Long-time lurker but first-poster here. I thought I'd put a question to the collective genius of the forum...

    A few years back, I bought a piece of land and subdivided into two green title properties, and built a rental property on each. Thinking we were being clever, we've put one in my name and one in my wife's name. Due to the resulting size of the properties, my share of the collective loan is roughly 44% and he's is 56%.

    Our situation since changed with my wife leaving work to be a full-time mum to our two daughters, which will likely be the case for a few years. Even though I'm covering 100% of the costs for both houses (and have since the very start), I'm told I can only claim for the property in my name. Because my wife isn't working, her losses are accumulated and can't be claimed until she's back at work. Given part of the year had the house untenanted, the losses for last year are around the $15-18k mark. I'm not too keen to have to wait another 4-5 years before we can start to claim this back. As she was in a low paying job, it may take years to claim back the full accrued amount.

    Is there any way I can claim this back now? If it helps, she is the sole name on the title, but we are both named on the loan, and the building contract to construct the house.

    Any thoughts? Help is much appreciated!

    Cheers,
    Rewey
     
  2. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    No. The losses will accumulate and do have an indefinite life so at some point if she returns to work or sells the property for profit etc then the loss will offset the taxable income.

    If you buy from her obviously duty and CGT must be considered.

    These are common outcomes from people who dont consider future income and circumstances when "structuring" ownership.

    You could buy some (50%) from her to lessen the impact. Would need legal and tax advice and ensure it complies. Would be refinanced at the time of that sale by lender and mean you get 50% of the losses thereafter. Perhaps if lender allowed it you could buy 100% but servicing may (or may not) be a issue. Check with broker.
     
    Perthguy likes this.
  3. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    You cant claim someone elses expenses.
     
  4. TheRewster

    TheRewster Member

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    Thanks for the fast reply, Paul. I was worried that might be the case. Originally, we were planning to sell the one in my wife's name, and keep the other, but in the end we were able to keep both. I guess we'll just have to wait. Hopefully the losses aren't that big every year!

    Cheers,
    Andrew
     
  5. TheRewster

    TheRewster Member

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    Thanks, Terry. I get that those are the rules, but from my layman's mindset the expenses have always been 100% mine, it's just that the land is in my wife's name. That's why I was wondering if I could claim part of the construction costs if the build contract was also in my name, or some other way?

    Cheers,
    Rewey
     
  6. Marg4000

    Marg4000 Well-Known Member

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    No, you can't.

    The land belongs to your wife. Any property built on the land belongs to the owner of the land. Even if a construction loan is in your name you cannot claim the interest as you do not own the house.

    How your mindset apportions household income and expenses is irrelevant. As a stay at home mum for many years, I can assure you that your wife's contribution to your family's well being is at least equal to the income you earn.

    And take a longer term view. Fast forward through the years, your wife will probably return to work and your family will benefit from the carried forward losses and the sharing of CGT between both of you.
    Marg
     
  7. Daniel Taborsky

    Daniel Taborsky Well-Known Member Premium Member

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    If the property was positively geared and tax was payable would you also be asserting that the income was yours?

    Unfortunately, the answer is clear - you cannot claim the expenses.

    Is there other income you can divert to your wife to utilise the losses? Family trust distributions?

    What makes this situation worse is if your wife earns a small amount of income, which is below the tax free threshold, the losses will be used but you won't get any tax benefit.
     
  8. TheRewster

    TheRewster Member

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    Thanks, Marg. Ignore my poor choice of wording. Certainly not diminishing my wife's contribution (she's amazing!). Just meant that the expenses are coming out of our sole income (ie. my salary), but can't claim back 56% of it, and at the moment it's a lot to hang out there for such a long time. Was just looking for a workaround.

    Cheers,
    Andrew
     
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  9. TheRewster

    TheRewster Member

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    Hi Daniel,

    No, if it was positively geared, I'd consider it as part of our joint income, much like I see our current losses - I was only seeking to claim losses from our current sole income in much the same way, as it impacts us both just as positively geared income would. I just wasn't sure if a husband/wife partnership were allowed to claim things that way, particularly given that our combined loan serviceability is based on our combined income. But it seems the answer is unanimous, so I very much appreciate everyone's input.

    Unfortunately, you lost me a bit at the tax free threshold part. Could you outline that a little more, or point me in the right direction to find out more? My wife's salary (when working) is around $45k per year. Are you saying it's only an issue if she earns below the threshold because there's no tax payable anyway?

    Cheers,
    Rewey
     
  10. Daniel Taborsky

    Daniel Taborsky Well-Known Member Premium Member

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    If your wife worked for a full income year and she had taxable income of $45K her marginal tax rate would be 32.5% (excluding the medicare levy). She would save 32.5 cents tax for every dollar of deductions (including losses carried forward) until her income dropped to the next tax bracket at $37K when the rate changes to 19%.

    Say your wife only started working in February one year and so only had a taxable income of say $15K. $15K is below the tax free threshold of approximately $18K so she wouldn't pay any tax but her carried forward losses would still be used up until her taxable income was reduced to nil.
     
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  11. TheRewster

    TheRewster Member

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    Wow - Thanks for that tip. I didn't realise that. When you say 'carried forward losses would be used up', do you mean if she'd accrued $50k, and earnt $15k as per your example, they would drop the accrued amount to $35k so her net taxable income is $0?

    Does that also mean if she earned $21k, she only reclaims the losses based on the $3k, and the rest rolls over until the next tax return?

    Many thanks in advance...
    Rewey
     
  12. Daniel Taborsky

    Daniel Taborsky Well-Known Member Premium Member

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    Yep
    If her taxable income was $21k her carried forward losses would still reduce her income to $0 (assuming she had enough losses). You can't choose not to apply tax losses. If carried forward losses are available they must be applied until your taxable income is reduce to nil. Any remaining losses can continue to be carried forward.

    She might get a (small) tax saving for the $3K above the tax free threshold although I think the low income tax offset would apply at her income level to reduce her tax payable down to around nil in any event (so possibly no real tax saving at that level of income).
     
  13. TheRewster

    TheRewster Member

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    Wowsers. Thanks again for the help. Might need to look into this some more!

    Cheers,
    Andrew