Hey guys, Looking to finally make a move into the market after many long years of watching on the sidelines. I just wanted to get a broader view of some of the tax implications i'll be facing when i purchase my investment property. I'm looking to go halves with my old man. Is it possible for me to buy the entire property in my name (to avoid stamps) and still transfer half the revenue to my father? E.g. Total rent for the year would total around 22k - When tax time comes around, he'll add 11k to his taxable income and me the other 11k. All this whilst his name is not on the title? Is there legal issues that may arise as a result of this tactic? Is it just easier to put both our names on the title but then pay stamp duty or is this the only legal avenue? I'm looking to speak with a property taxation specialist soon (If anyone has recommendations, please shoot!) but i wanted to get Property Chat's general ideas on do's and dont's Cheers!!
Yes Yes - assuming you qualify for stamp duty exemption as a FHB. So the property will be your home and not an investment property - I am not over the FHB grant in every state though. No. To qualify for FHB exemption you will need to certify that you are the owner of the property and you are not doing on trust for another person. The beneficial ownership of the property will flow through to the tax effect of the rental income and so forth. Can you borrow money from your dad and pay him interest? I would wonder if their is another way to structure the deal. This might involve into looking through to the motivations of everybody involved and what you are wanting to achieve. And a few other issues in relation to the purchase - issues on death, divorce, general grumpiness and so forth. Look at the services section. You can see where the tax guys are located. The other tax guys I have seen prowling around here are all smart cookies. Get the loans structured properly to achieve a good tax outcome. This is where a lot of tax value is generated.
Hey Ross, thanks for the in-depth reply! When you say borrowing money from my dad (Absolutely possible) what are the exact benefits that this will have? How would something like this be potentially be structured? At this point, i might also look at putting the title under both mine and my mum's name. She has no income so she'll be able to retrieve half of the income come tax time. Of course, this reduces the tax minimisation benefits that will be available to me. Cheers!
If you lend money to your dad (or a trust etc) your Dad can also lend to you. The benefit is that you have now borrowed money to finance all of the house purchase. And while the house lending, for bank purposes is say, 80%, the total loan to acquire the house is 100% - 80% from the bank and 20% from your Dad. Later on you could borrow money from the bank and repay your Dad. You might do this when the value of the property goes up. And the interest charged on this new borrowing will be tax deductible. You are just refinancing a loan. If your Dad then choose to repay you that is fine too. And you could use this money for a private reason. You will need to make sure everybody understands and the loans are properly prepared and execute the strategy. These things fall over when the documents are not properly prepared and the money flows is not clear. You also need to think about what happens if stuff goes pear shaped - you Dad gets divorced and finds somebody 40 years younger, your Dad dies, your sister gets in in her head that he lent you money and you never lent him money etc etc It has legs though. Chat to a smart bloke and you should be fine.
It is also a way to divert profits to your dad in a tax deductible manner, without any ownership issues. e.g if you borrowed $50,000 from him instead of sharing profits he could charge you 10% pa interest and you could pay him $5k and this could be deductible to you provided set up right.
