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Tax Tip 21: Tax Advantages of Buying property in 1 name only

Discussion in 'Accounting & Tax' started by Terry_w, 18th Aug, 2015.

  1. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Tax Tip: buy property in 1 name only not jointly

    Just considering personal purchasers for the moment, when two or more people are considering buying a property together it is worth considering whether to buy the property jointly or in just one name.

    There are many tax advantages in buying in 1 name as it allows for many different strategies.

    1. Spousal Transfer Strategies
    Different states have different laws, but in some states it is possible for one spouse to purchase the property of the other spouse without paying stamp duty. The purchasing spouse can borrow to do this and the seller can use their money from the sale to pay down the non deductible debt.

    2. Offset accounts and tax
    Often spouses have different incomes. So there can be advantages with keeping the family cash in one particular offset which is against a property. There would be no benefit if all the properties were jointly owned, but where there is no non deductible debt and a non working spouse this can save thousands in tax

    3. Capital Gains Tax
    Sometimes a property needs to be sold, or wants to be sold as part of a strategy that is being implemented. Where all properties are in both names then both will receive any capital gains. But where the properties are in one name it is possible to minimise tax by selling the property owned by the spouse on the lower income - or no income when they are not working, such as on maternity leave.

    4. After death tax savings
    95% of people die (+-5%) so there is an opportunity to gift separately owned property tax effectively. e.g. you have a fully paid off property generating $40k in positive income and your spouse is on the top tax rate. If you die and the spouse takes the property (e.g. Joint Tenant) they will pay about $17k in tax per year. But if the property is left to the trustee of a testamentary discretionary trust there may be no tax at all if you have 2 or more children under 18.


    Even where you own a property as tenants in common your share could be left to a testamentary trust, but the effect would be more tax than if the whole property was left.


    Non tax related reasons:

    5. Breakups
    Another reason is if you break up it will be easier to divide things up. Actually this could also save tax as borrowing to pay out a spouse is not deductible.


    6. Increased serviceability
    Each of the spouses will only be liable for their own debts. No joint and several liability to borrow about where banks will assets each person on the whole debt and not just their half - while also only counting their half of the income.

    Naturally there are many legal consequences when only 1 of a couple own a property so seek legal advice before trying this.
     
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  2. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    In NSW the property in one name may also be able to be refinanced so that the spouse buys the other half at the prevailing market value. No duty. Ditto Vic. This refinancing can also convert non-deductible loan interest into tax deductible in some cases. (usually when a property is about to cease being a PPOR and become a IP)

    (There are catches involving specific timing of when to do this in NSW). Tax and legal advice is a must but not greatly onerous. Tip : Terry and I have mutually assisted in doing this.
     
  3. MikeLivingTheDream

    MikeLivingTheDream BCOM MCOM MTAX CPA CTA Registered Tax Agent

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    agreed Paul i've also worked with terry on doing these type of things. It is a great strategy but needs to be done correctly.
     
  4. Perthguy

    Perthguy Well-Known Member

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    Thanks Terry. I have an investment partner and at the start neither of us could afford to buy an IP on our own but we could if we bought one 50/50. Further along our investment journey I can see the disadvantages of that strategy, so the next purchases will be in 1 name only.
     
  5. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Perthguy

    Depending on how you each finance, a unit trust could be a strategy where you seek to avoid being 50/50 "partners" and one may choose to buy out the other. A UT strategy can assist with avoiding a stamp duty trigger yet allow one party to take their share of capital gain and the other ends up with 100% beneficial ownership / control.
     
  6. Perthguy

    Perthguy Well-Known Member

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    Thanks @Paul@PFI. Certainly something to consider but equally something I wouldn't do without proper professional advice given our respective tax situations.
     
  7. flora chan

    flora chan New Member

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    Hi, I am planning to buy investment property with my siblings. What is the best way to do this? Would setting up a family trust to do this is better way of doing this? How do I even start of setting it up?

    Or it is better to just buy the property using join name?


    Thanks guys.
     
    Last edited: 25th Aug, 2015
  8. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    impossible to answer without knowing any details. Seek legal advice.

    My first thought is 'don't'!

    see
    Legal Tip 68: Avoid 99%/1% ownership of property https://propertychat.com.au/community/threads/legal-tip-68-avoid-99-1-ownership-of-property.3237/
     
  9. Perthguy

    Perthguy Well-Known Member

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    I just ran into an issue with buying jointly. Years ago, I bought a development site with my investment partner with an 80/20 split "for tax reasons". Big mistake not getting proper advice first.

    We are now building townhouses on the block. After construction, each townhouse will be on it's own title and I would like to buy out my partners share in one townhouse and he buys out his share in my townhouse. Capital Gains Tax and Stamp Duty are relatively trival. The deal killer is GST. It will be around $30k total :( Leaving newly constructed townhouses in 80/20 split ownership isn't ideal when he goes for a loan for his next IP.
     
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  10. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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  11. Perthguy

    Perthguy Well-Known Member

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  12. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Partitioning can be done anytime but with consequences.
     
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  13. Perthguy

    Perthguy Well-Known Member

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    Thanks Terry.
     
  14. Beelzebub

    Beelzebub Well-Known Member

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    If me and my partner own an IP jointly is it difficult, or worth, changing the ownership structure by putting the property in one name?

    Would it be worth looking into next time I am ready to re-finance?
     
  15. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yes, worth considering. But it will depend on the costs and hassle do change title.
     
  16. melbournian

    melbournian Well-Known Member

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    i have done purchasing together (without a loan) with relatives - and i did find it relatively easy to take off a name or add a name (brother or sister) with the title. if it was soley held in one name and you want to transfer you would be slapped with stamp duty.
     
  17. Fitzy1903

    Fitzy1903 Well-Known Member

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    I just looked at the WA laws with the spousal transfer and it looks like the property has to be your PPoR. Is this consistent with your guys understanding?
     
  18. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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  19. Perthguy

    Perthguy Well-Known Member

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    In Western Australia, a spousal transfer of part of an investment property incurs stamp duty as far as I know. Eg. husband and wife buy IP with a 50/50 split. Later he wants the IP 100% in his name and buys his wife's 50% share. As far as I know there would be stamp stamp duty on the value of the land being transferred. I could be wrong but I am looking into this now and this is my understanding.
     
  20. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yes this is correct. Exemption only available under s97.
     
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