Strategy: Buying Investment Properties in 1 name only

Can I just say you are an absolute legend @Terry_w ! I did try searching for a tax tip on this one, but obviously missed it. If our paths ever cross your drinks are on me!

 

Along with many other readers of the wisdom,

I hear Osaka might be the chosen place Asia - Japan: Meet up in Osaka 23 August

 

Just a bit more info to add on the topic of one title, joint borrowers. I got somewhat interested in this topic today following comments from @Terry_w and found an ATO ID which confirms the full deductibility of interest: ATO ID 2002/363 (Withdrawn) - Rental Property - proportion of deductions claimable

It has been withdrawn as it is duplicated in a couple of tax rulings but as a layman I found it easier to follow than those documents.

For those who can't be bothered clicking the link summary is below:

Issue

Is the taxpayer is entitled to claim the full amount of the interest paid on a mortgage for a rental property ... when listed on the title deed as the sole owner, but the mortgage is held in joint names with the taxpayer's spouse?

Decision

Yes. The title deed determines the percentage of the claim for loan interest expenses in most cases. As the taxpayer is entered on to the title deed as the sole owner, they are entitled to claim the full amount the loan interest expense under section 8-1 of the ITAA 1997.

 

I think the ATO are confusing mortgages and loans here. Loan in 2 names but title in one name. Only title holders can give a mortgage

 

Another reason

Shuffling of Money in Offset
Money in offsets can be moved around to save tax. This will only work where the properties are owned by different entities.

Example 1
A and B own 6 investment properties in equal shares and have paid off their main residence. They now have $500,000 cash from an inheritance.

They deposit this in the offset accounts attached to their investment loans.

Interest rate on these loans is 5% so they are saving $25,000 per year in interest. Because their are equal owners they are each saving $12,500 per year in interest. This means they each have $12,500 per year in extra income.
A is on the top marginal tax rate of 47% and pays an extra $5,875 per year in tax.
B is under the tax free threshold so pays no tax.

Example 2
As above but they each own 3 investment properties.
In this case the couple decide to place the $500,000 cash into the offset account of the loans relating to the properties B owns.

B now receives $25,000 extra income and A nil extra.
B's other income was say $10,000 so B's taxable income is now $35,000. B pays $3,447 in extra tax and A pays no extra.

Comparison
Owning jointly results in $5,875 in tax
Owning separately results in $3,447 in tax
Overall tax saving is $2,426

 

IF contract of sale was co-singed and loan is in same two names... does it stand to reason that the Title must be in both names or could just one of the co-borrowers/signatories be nominated.

 

A single name could end up being the owner.

Seek legal advice before trying this especially on the stamp duty aspects

 

Actually serviceability may vary a little bit as the tax consequences will be different.

 

very interesting indeed. While on one hand it accepts the deuctions and benefit based on the spouse on title but it goes further in saying that...The fact that the other party to the mortgage may have paid some of the mortgage expenses is of no consequences for income tax purposes. The ATO treats the payment of the other party's share of the expenses as no more than a loan from the other party to the taxpayer (Taxation Ruling TR 93/32 paragraph 49).

 

That makes sense. But it is probably more likely to be a gift rather than a loan

 

Hi Terry, I've been reading many of your posts and very much appreciate professional advices that your have given out. I have my PPOR paid off and 2 IPs on mortgage. All are under just my name. The reason is my husband is not a citizen and he is overseas most of the time, hence, we thought it's easier to have properties just under my name. We plan to look for more IPs from next year ( I am looking at VIC for now). My accountant advised to buy under a family trust with a very little explanation that it is good for tax purposes. Our plan is to give 1 property to each child later. My questions are:
1. Should I buy IPs under family trust from now on
2. What happens if I die before paying off the properties that I want to give my children? is that a must that we need to pay off a property before giving out?
3. My accountant advised that I should leave properties to my kids as gifts to have less CGT and stamp duty would not avoidable, is that correct.
Yours and others advices are very much appreciated. Many thanks, Hannah

 

1. Get some specific legal advice. Your accountant shouldn't be advising on this.
2. Loans will need to be paid out somehow
3. Not correct and this is legal advice. Death doesn't trigger CGT or stamp duty.

 

Thanks a lot

 

Thanks for this great post @Terry_w !!!
I would like to ask you if I Can buy in single names a PPOR in order to have NSW stamp duty cosesion (1st time home owner)? Then, move in with my wife and then rent this property after 7 months?

Will I have the same benefits/disadvantages that you mentioned above?

Or buying under single names is for IP only ??

Thanks

 

If you rent it out the owner will receive the rent and deductions.
Estate planning and asset protection need to be considered too.

If you transfer title while renting full ad valorem duty will apply.

 

You usually can't receive first home buyer benefits if your partner has already received them.

 

Thanks Peter,

She hasn't bought any property. Therefore she hasn't received any benefits.

Thanks

 

Thanks Terry,

Do you think we could buy our PPOR under single name and still have same benefits/ advantages you mentioned at the beginning of this post?

 

Hi Neell,

I now realise it's not what you asked, but you'd be surprised how many people have wanted to get the first home buyer benefits twice by each half of the partnership buying a property each. Sorry 'bout that.

 

Probably. Seek legal advice on your circumstances