Hi all, I am planning to soon buy my first property (PPoR) and would like to get the ownership structure set as best as possible from the beginning. I have been reading through a number of threads to understand the pros and cons of ownership (Spouse A vs Spouse B vs both). These are typically discussed in relation to investment properties, so I am trying to work out how to apply this to a PPoR. My situation is that I will be buying with my wife, and she earns less than me. We are in QLD. Potentially this house may become an investment property when a new PPoR is purchased, perhaps say in 8 - 10 years. I've read through Terry's tax tips, and my understanding is that there are certain advantages to have in one name only. Where I am stuck is to work out should that be in the higher or lower income earner? Am I correct that if it is turned into an investment property, then if in the lower earner they would pay less tax on any rental income, could be a place to park cash in the offset, and lower CGT in case of a sale. If put in the higher income earner, then if turned into an investment property there would be the potential to negatively gear and thus receive tax advantages. I am not particularly concerned about structuring for breakups or asset protection. Happy to hear any advice and opinions on which is the best for my situation! cheers, dennis
Partly depends on your future plans. Capital gains may be a smaller issue if you hold it until you stop working, or until your dead.
If it is the main residence tax is of little concern. The legal aspects are possibly more important as well as the lending aspects. However if it does become income producing the owner would be the one to claim the interest and costs and receive the rent. So tax could be an issue then as well as when it is later sold. But how likely is it to become a rental and when? It might be negative now but positive then. You should probably seek legal advice from your conveyancing lawyer
Thanks Terry. Crystal balling of course, but lets say turned into income producing in 10 years. Our plan would be to slowly pay down the loan on the original property, and park cash in the offset (say approx 200K now, but growing). Then if we wanted to buy a new PPoR (say in 10 years), use this offset cash as a deposit. Then the original property would likely be negatively geared, so best in the higher income name? Is that logic correct?
in 10 years it should double in value at least as should the rent. It would probably be positive geared at that stage. Tax is just one consideration.
Ah yes thanks, forgot the likely appreciation in rent. So am I correct by saying that the question for me is to best estimate when it is likely to turn into an investment property?If short term (a few years) then buy in higher income earners name for neg gearing, if longer term (say 10 years plus) then put in lower income earners name so positive cash flow is received into the lowest tax rate. But even if option A and neg geared for a while, will likely eventually turn pos geared pushing to option B, assuming it is not sold. Perhaps the best is to just do the usual and buy in joint names, as the timelines are unclear?
Thanks for the response Terry. My aim is to increase my understanding so that I don’t make the mistake of taking a short term blinkered view! I think it is easier to set these things up correctly at the start rather than trying to fix later. Would you mind expanding on what you mean a little more? Note neither mine or my wife’s profession have any foreseeable likelihood of litigation.
have a read of my legal tips. My structuring checklist for ownership has about 20 main headings of things to consider and many subheading. eg. asset protection income now, and future CGT in the future stamp duty on restructuring land tax now and in future asset protection on bankruptcy asset protection on death control loans serviceability etc future strategies - main residence CGT exemption - spousal sale - spousal loans - related party sale - TDT in will - ePOA etc
You also have ignored that if the value doubled you may borrow against the equity and buy another neg geared IP to offset the pos geared one. People often fear positive gearing when it can help fund cashflow shortfall on the next one. This is the principle of leverage.
Thanks for the replies. Terry: Asset protection - for our situation I don't see the risk high enough to warrant this being a major factor in ownership between which spouse. Not concerned over control. (famous last words!) Serviceability - plan is to have both names on the loan, but potentially not on title Income now and future - most likely current higher income earner will stay that way. May be periods (maternity leave etc.) of nil to low income for current lower income earner. CGT in future - for this best to have ownership as lower income earner. Stamp duty on restructuring - from what I understand there would be no duty if going from 100 to 50%, but the downside is that only 50 % of the loan interest is now deductible. Land tax will be exempt for now (PPoR). If turned into an IP, best to have ownership as lower income earner. Paul: I don't fully understand you here. I get that there is likely to be an increase in value, which could be used to borrow against. However how does that impact the decision on ownership of the first property?
Asset protection – seems like you are only thinking of bankruptcy. What about asset protection on death or incapacity or family breakdown. Why have both names on the loan if you don’t have to? CGT – will lower income earner always be the lower income earner? What if the non-owner can’t work anymore for example. Stamp duty – only if no consideration in QLD Land tax is levied on the value of the land so higher or owner won’t change this.
Hi Terry, Asset protection - not worried about family breakdown. Re death, I assume that can be covered in the will? Names on loan - the lower income earner would not be able to service the loan themselves. The loan could be serviced by the higher income earner alone. What are the pros/cons of going joint vs higher income earner only? CGT - yes, most likely lower income earner will always be Land tax - thanks, I have done a little reading on this. I see now that it is on the land value, independent of income. But it is on each persons share, so a potential benefit of having in joint names, or more likely if an additional IP then in the other name.
Asset protection - not worried about family breakdown. Re death, I assume that can be covered in the will? Not if you don't own it! And not if it is owned JT. What if Spouse A owns the property and dies and leaves it to C? What if Spouse A leaves it to B, but D makes a family provision claim? Names on loan - the lower income earner would not be able to service the loan themselves. The loan could be serviced by the higher income earner alone. What are the pros/cons of going joint vs higher income earner only? There may be little choice now in that case - Spouse A owns with both A and B on the loan or Spouse B owns with Spouse B only on the loan. Consider future serviceability, and Risk if repayments cannot be met. Land tax - thanks, I have done a little reading on this. I see now that it is on the land value, independent of income. But it is on each persons share, so a potential benefit of having in joint names, or more likely if an additional IP then in the other name. In QLD it could actually save you land tax, in the future, if it is over the $600k threshold and owned by 2 persons.
Ok, so it seems might just be best just to go 50/50 in my case? Bit of a hedge as exact future plans aren't set?
