Tenants in common | Tax benefits of periodically refinancing

To optimise tax efficiency for a jointly owned investment property by individuals A and B, who are tenants in common but undecided on the ownership split:

1. Losses incurred during negative gearing phases should be allocated to the individual in the higher income tax bracket.
2. Profits earned during positive gearing phases should be assigned to the individual in the lower income tax bracket.
3. Given potential fluctuations in income levels, flexibility is needed to adjust the distribution of losses and profits to the tenant in common best positioned to absorb them at different times.

Regarding ownership and financing arrangements:

According to Terry Tax Tip 80, interest deductibility isn't tied to ownership percentages. One co-owner can borrow exclusively for their share without impacting others. Is it possible to periodically refinance to shift debt to the most beneficial party?

Alternatively, is it possible to adjusting the proportion of unequal shares periodically? Or would that incur stamp duty/other financial obligations?

Thank you

 

refinancing doesn't change deductibility of loans

Yes, but then you had duty, CGT and conveyancing costs plus will lose deductibility of interest

 

According to Terry Tax Tip 80, interest deductibility isn't tied to ownership percentages. One co-owner can borrow exclusively for their share without impacting others. Is it possible to periodically refinance to shift debt to the most beneficial party?

Well thats partly true and partly false. In practical terms A & B as spouses may be BOTH required to be co-borrowers and so loan/s are shared and will NOT be respective for each owner but will be based on legal title. Example A & B take out two loans. One for $50K and another for $450K. Neither has a claim to it being their loan so the deduibility is merely based on legal title.

Refinancing doesnt change deductible balances.. The new equity loan on refinance needs to consider the use of the changed borrowing. ATO will not accept a higher loan as deductible without explained and supported use.
eg Instal a new kitchen = deductible. Use it to buy a boat it is private and non-deductible.

Fiddling with ownership can trigger CGT on the change (and duty) so its fairly useless as a strategy usually. Future CGT may change but through a CGT event occurring. In time it become super complex and one owner will have multiple parcels of costbase etc. However it depends. One of the best is in NSW. ONE owner for a property that A & B live in. Prior to moving out A transfers 50% to B. It is exempt from duty. Can also be a exempt CGT event. Then aftre this date a refinance occurs to allow B to buy half of A's share. This may refresh the loan and enhance deductions just for B. A will have half the former loan as deductible. Overall loan balance has increased. A then discharges half the old loan and keep the balance and uses it to buy a new home.