Tenants in common, joint loan, flip

Discussion in 'Accounting & Tax' started by Gypsy78, 4th Oct, 2017.

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  1. Gypsy78

    Gypsy78 Member

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    Hi
    After some advice.
    I am looking at buying an Ip to flip. I have an abn and will run it as a business and believe it can be treated as stock, thus meaning capital gains doesn't apply and all expenses are claimable including stamp duty against any profit. In order to purchase the property I will have a family member on the loan however that's to satisfy bank requirements only. The will have no interest in the property as such. My question is will this affect their tax? And does the % tenants in common need to be declared to the bank? Or is it just on tax return? If at all?
    Many thanks
     
  2. D.T.

    D.T. Specialist Property Manager Business Member

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    The bank will want to know who owns the property or how much of the property they own, of course. Who will they go after if worst case scenario happens?

    Tax treatment is based on ownership, or share of ownership. Who is on the loan is irrelevant for tax purposes.
     
  3. Gypsy78

    Gypsy78 Member

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    Thank you for that
    So realistically we can be 50/50 on loan to get maximum borrowing capacity.
    And on tax return can I be 100% so the other party has no effect on their tax?
    Thanks again
     
  4. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    A bank probably won't let a family member be on the loan without being on the title. If they are on the title they will have tax issues so consider 99/1% ownership or 90/10 depending on the bank as this will minimise their profit.
    Bank will need to know the % ownership.
     
  5. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Not really. ATO has said that generally where spouses are involved it is the ownership that determines deductibility - generally.
     
  6. D.T.

    D.T. Specialist Property Manager Business Member

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    Huh? Isn't that exactly what i said?
     
  7. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Sorry, you did say that or similar.
     
  8. Gypsy78

    Gypsy78 Member

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    Thanks
    The other party is my sister
    So if she has 1% share does this effect how the bank analyse the loan?
    And if I am running it as a business under my abn how is the tax apportioned to her?
    Thanks
     
  9. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    first check with your broker that the bank will accept 1% ownership, some may require at least 10%.

    If she is 1% owner she will be assessed on 1% of the profits or losses.
     
  10. Gypsy78

    Gypsy78 Member

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    Thanks terry
    To clarify: it doesn't matter that I will be running it through my abn? She will still be liable for some tax %?
    And are all expenses, loan repayments claimable etc against the profit?
    Thanks
     
  11. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    This is something you need specific legal and tax advice on.

    You will be 99% owner - you won't be 'running it through your ABN'.
     
  12. Gypsy78

    Gypsy78 Member

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    Under this structure it is still considered as trading stock and all expenses are claimable?
    Repayments
    Stamp duty
    Coat of renovating etc
    Thanks
     

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  13. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    The structure generally doesn't change whether a property is a capital asset or trading stock.
     
  14. Gypsy78

    Gypsy78 Member

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    If it's a capital assets and is sold within 12 months isn't it subject to capital gains?
     
  15. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    If it is a capital asset and sold at any point it would be subject to CGT, unless an exemption applied.
     
  16. Gypsy78

    Gypsy78 Member

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    But if it's trading stock and sold within 12 months it's exempt
     
  17. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    It will be taxed as income no matter when you sell.
     
  18. Gypsy78

    Gypsy78 Member

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    I understand it will be taxed as income but if it's trading stock it doesn't attract capital gains tax but rather is added to yearly income and taxed accordingly. However all expenses are deductible- repayments, stamp duty, cost of renovating?
     
  19. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    it is either one or the other - capital account or revenue account.

    sounds like you need some tax advice as well as legal advice.
     
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  20. Gypsy78

    Gypsy78 Member

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    I will seek tax advice
    Why do you recommend legal advice