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Ownership split to benefit tax.

Discussion in 'Accounting & Tax' started by Paterson00, 2nd Mar, 2016.

  1. Paterson00

    Paterson00 Well-Known Member

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    Hi all.

    We are just finalizing the purchase of our second IP and the conveyencer has asked how we would like the ownership split. Im sure that i know the answer but just wanted to check it made sense.

    Our position

    1st IP solely owned by me as that's the way it ended up. ( Long story ) I earn around $190k currently

    My wife, no IPs in her name and earns about $25k estimated in her own small business.

    Split my opinion should be 99% my wife and 1% me so we can utilise her lower tax band. Does that sounds correct?

    If that's correct and my wife's business drastically changed in the future to earn a lot more and I a lot less is it easy to change split later?

    Thank you

    Paul
     
  2. Marg4000

    Marg4000 Well-Known Member

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    Have you signed the contract yet?
    If so, can you change the details?
    Marg
     
  3. thatbum

    thatbum Well-Known Member

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    Why even have 1% in your name? I think this issue was the subject of one of Terry's legal tips on here somewhere.

    And generally its not easy to change later FYI.
     
  4. Lisa Parker- Buyers Agent

    Lisa Parker- Buyers Agent Well-Known Member Business Member

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    I am guessing the property is cash flow positive?
     
  5. Paterson00

    Paterson00 Well-Known Member

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    Thanks all. Yes positive, sorry i should have said. (Negative ones go in higher earner to reduce tax?)

    I assumed i had to go on there as at least 1% as my wife would need my finance power to purchase.

    Nothing signed yet but settlement soon so will need to get it finalised quickly.
     
  6. Daniel Taborsky

    Daniel Taborsky Well-Known Member Premium Member

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    Have you thought about purchasing it in a discretionary trust?
     
  7. Paterson00

    Paterson00 Well-Known Member

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    I did wonder if a trust would be better but this is an area I know nothing about. I plan to buy more in the future and also venture into perhaps buying in America where my understanding is that you should always buy in an LLC over there as a level of protection and the LLC is owned by the Australian trust as another level. We looked at America before and had enough deposit for only one at the time so the profit margins seemed to be eaten up by the costs of the structure do we dismissed the idea over something closer to home for now. On this basis a trust may be suitable but time is against me. Are there other reasons?
     
  8. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Read my tip on why not to buy 99%/1%. There is minimal benefit buying 1% of a property but lots ot detriments.
     
  9. Daniel Taborsky

    Daniel Taborsky Well-Known Member Premium Member

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    There are many benefits that can be gained by using a discretionary trust (e.g. flexibility in distributing income, asset protection, estate planning, etc). In your case, the flexibility to change the distribution of income between yourself and your wife on a year to year basis may be quite useful (especially if your wife's business takes off - although, you should also consider whether the business should be in her personal name as well).

    One of the downsides of using a discretionary trust (or any trust for that matter) is that any losses generated within the trust are trapped (i.e. they cannot be used to offset the beneficiaries' other income). So without another source of income for the trust, a discretionary trust may not be appropriate for negatively geared properties. A discretionary trust also brings with it additional cost and complexity.

    You should get some personal advice ASAP. There's no reason a discretionary trust cannot be set up quickly if it is appropriate for your circumstances.
     
  10. Paterson00

    Paterson00 Well-Known Member

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    Hi Terry. Where would i find that?
     
  11. BennEznElle

    BennEznElle Well-Known Member

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  12. Paterson00

    Paterson00 Well-Known Member

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    Depreciation will take it to around $330 per month positive geared assuming a $6000 minimum deduction of tax confirmed by BMT although this was done from a desktop analysis. There hasn't been a quantity surveyor report carried out just yet.

    Without the depreciation it'll be about $60 positive per month if I've done my maths right.
     
  13. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    What state is the property in?

    It is not easy to change ownership later on and it can be very expensive and time consuming also.

    Do you have any non deductible debt such as on the PPOR?

    You should be getting legal advice from a lawyer on the ownership (conveyancers are not qualified) as there are many side issues to consider as well as the main issue.
     
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  14. Daniel Taborsky

    Daniel Taborsky Well-Known Member Premium Member

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    The property has positive cash flow but is negatively geared for tax. If you hold it within a trust you won't get that tax benefit.
     
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  15. Daniel Taborsky

    Daniel Taborsky Well-Known Member Premium Member

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    You haven't signed a contract yet, but settlement is soon... How does that work?
     
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  16. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Do not invest in US using a Australian trust. The US tax laws treat a trust very differently.
     
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  17. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    And in 5 years, in 10 ??
    What about land tax
    Loan servicing ?
     
  18. Paterson00

    Paterson00 Well-Known Member

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    Yes my PPOR is still owing around $450k.

    The conveyencer has definitely not given me advice about this although I did nievely ask them for it.

    The property is in QLD.

    I'm correct in saying that changing ownership later on for the benefits will incur stamp duty even between spouses so probably not worth it.

    The settlement date is 18th March and have been advised this morning that if we decided to to take me off the title and then have just my wife on it we will start the ball rolling on a whole new set of documents and we won't hot the 18th for settlement. On the basis of this one instructed them to share ownership at 25% me and 75% my wife. I wish I'd known more about this before starting this process but at least I'm still buying.
     
  19. Paterson00

    Paterson00 Well-Known Member

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    Who's to say what the rents in the area will be in 5 or 10 years time. Hopefully more but there's no guarantee.
     
  20. Paterson00

    Paterson00 Well-Known Member

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    Sorry. .. signed the contact on the offer and we have had all the clauses satisfied but i haven't signed any of the final transfer papers to denote ownership split if the are to be any.