Join Australia's most dynamic and respected property investment community

New IP

Discussion in 'Accounting & Tax' started by Pistonbroke, 19th Jun, 2015.

  1. Pistonbroke

    Pistonbroke Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    395
    Location:
    Guangzhou
    I am undertaking dude diligence on a property that will be solely in my partner's name.

    Their income is reasonably low and probably insufficient to get a loan. As the loan will be heavily reliant on rental income cf+ & we have 》20% for deposit/stamps/legals etc.

    Will I have to go onto the loan as guarantor or as joint?

    If joint on the loan, will I be able to claim interest, expenses etc if I am not (& don't want to be) on the title?
     
  2. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,159
    Location:
    Canberra and Sydney
    My understanding (and I'm not an accountant) is that ownership on title determines who claims what.

    Cheers

    Jamie
     
  3. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,400
    Location:
    Sydney
    Banks aren't huge fans of guarantors. You might put up additional security or a limited guarantee (some banks offer this for parents to assist high leverage loans). That said your mortgage broker will know each bank policy and who will assist and who wont. The broker should advise on the heavily reliance on rental income - The lender will want to see other income from wages etc so that if rents stop the loan can be serviced.

    You don't want to be on title as that issue determines tax on income and deductions. A joint borrower who isn't on title has no tax issues. Just a financial risk.
     
  4. Pistonbroke

    Pistonbroke Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    395
    Location:
    Guangzhou
    Paul, that raises two issues:

    Reliance on other income - small income from partnership and franked dividend from shares. Will these suffice for proof of income?

    If I have to be on the loan am I not also jointly responsible for payment of the loan but unable to claim the interest expense as i don't own the property?

    As we have other jointly owned property assets, are these all bundled together for land tax purposes even though I don't have an interest in the new property?
     
  5. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,400
    Location:
    Sydney
    A broker is the correct person to be asking these questions. They know this stuff and it indicates why I always recommend a broker is used. Like supermarkets I wouldn't trust a bank to offer the best deal. They offer what makes them $ and what complies with their rules. Around the corner another bank may have a far easier, sweeter deal.

    If you are a co-borrower you claim nothing unless you own any of the property. Its same as joint / TIC owners such as spouses who own IPs. It doesn't matter who pays what. Hubby can pay it all and he cant claim 100% of deductions. He gets 50% of income and 50% of deductions for tax. No exceptions unless its a property investing business and it takes a hell of a lot to satisfy that.

    I don't follow the comment about land tax. In its simplest form land tax is based on EACH OWNERS share of unimproved land value on all their property. Even a $10K land share from a small apartment adds in..Example

    Dave & Mabel own $200K land 50/50
    Dave & Mabel own $300K land 70/30
    Dave owns a IP $320k land
    Mabel owns a apartment with $15k land
    Mabel owns their house they live in

    Dave has a land tax value of $100K + $210k + $320k = $630k. Over threshold so he pays
    Mabel has a land tax value of $100K + 90k +$15k = $205k. Under thhold so nothing to pay.
    The PPOR is exempt.
     
  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    9,033
    Location:
    Sydney
    If your spouse doesn't have the income then you have 3 choices
    1. Borrow using other property and lend her.
    2. Both of you on the loan
    3. Her on the loan and you giving guarantee.

    And a forth choice perhaps
    4. TIC 90/10 ownership

    If you borrow and onlend she can claim the interest you charge her as a deduction.
    Both on the loan but her on the title then she claims the interest and deductions, same with a guarantee, essentially the same except you not liable unless she doesn't pay.

    Other property will not be requred to be used as security. But if either of you default this property could eventually be at risk.
     
  7. Mumbai

    Mumbai Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    763
    Location:
    Sydney
    make sure he is handsome ;)
     
    Azazel likes this.
  8. Pistonbroke

    Pistonbroke Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    395
    Location:
    Guangzhou
    Geez about time someone picked up on that.
     
  9. Azazel

    Azazel Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    8,113
    Location:
    Brisbane
    Sounds like a man fragrance.