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Tenants in common tax %

Discussion in 'Accounting & Tax' started by undercover, 14th Apr, 2016.

  1. undercover

    undercover Active Member

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    We have an IP which will settle in a few weeks which is held in 4 individual names both on the loan and title.

    The title (Vic) has been lodged as tenants in common showing the following % to max for 2 of the highest earners (both 49%) with the two lower earners having (1% each).

    When lodging all our tax returns am I right in thinking that once the total deductible items have been added up, its simply a matter of just applying those % to each individual?
     
  2. Propertunity

    Propertunity Exclusive Real Estate Buyers Agent Business Member

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    As I understand it - Yes. Apart from Land Tax (if it applies to any of the 4 individuals, who may own other property in their own right).
     
  3. pinkboy

    pinkboy Well-Known Member Premium Member

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    Yuck. Do you not understand the implications of this arrangement far outweigh the perceived benefits?

    pinkboy
     
  4. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Undercover....Yes. That's a concerning question to ask after the contract was drawn up.

    The net profit or loss for tax purposes will be shared in that same % even if one of the 1% owners gets the joy of having the mortgage enforced on them.
     
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  5. Propertunity

    Propertunity Exclusive Real Estate Buyers Agent Business Member

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    Jointly and severally liable can be nasty. Also affecting all 4's ability to borrow into the future....:(
     
  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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  7. undercover

    undercover Active Member

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    I agree its not an ideal situation, however it was needed to be structured this way as joint borrowers and tenants in common (2 x Married Couples) to get enough serviceability and the wanted the gains / losses to go predominantly to two of the borrowers (one in each marriage with high incomes).

    This was a legitimate strategy, albeit with the downsides that others talk about.

    (for context this IP is in a complex of 4 units in which I already own 3, securing this 4th unit now gives us complete ownership of the units and 1000sqm of land in a central activity area in eastern Melbourne, I was also able to purchase this IP privately and for 10% under the bank valuation)

    Thank you for clarify the tax % for me.
     
  8. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Sometimes you need to do things that you wouldn't do in an ideal world.

    If the plan is to later transfer the 4th unit to your sole ownership consider the stamp duty on the subsequent transfer and try to minimise this.
     
  9. undercover

    undercover Active Member

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    When that day comes (which I suspect it will) and I transfer ownership from the 4 names into my sole name (or with my spouse) will I have to apply to refinance given the other parties no longer have legal ownership and the current bank wouldn't allow just myself (and maybe my spouse) to continue the current loan because we didn't meet servicbility in the first instance?
     
  10. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yes change of ownership will mean a new loan application. (not really a refinance - except for the remaining owners).
     
  11. undercover

    undercover Active Member

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    I presume you'd have to undertake this process and obtain unconditional/conditional finance approval before lodging a transfer of title? As there is a mortgage on the property, I would need the lender’s consent to have the other parties name removed from the property title.
     
  12. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    You won't be able to transfer title unless the mortgage is released so yes you would need a full loan approval in place.
     
  13. undercover

    undercover Active Member

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    Thank you Terry. As a broker you'd appreciate the nightmare my broker had to go through with a loan application with 4 individuals. Not even the application forms allow for it.

    So this will be the last time fingers crossed.
     
  14. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    I have actually purchased a property with 3 others myself once - 20 years ago.
     
  15. undercover

    undercover Active Member

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    Back before APRA became ASIO I hope....(bad joke but the amount of documents times four was like being vetted for a negative level 1)
     
  16. Marg4000

    Marg4000 Well-Known Member

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    We once purchased a unit that was jointly owned by four couples who lived interstate. Getting eight vendor signatures on paperwork was a nightmare!
    Marg