Purchasing First Investment Property

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  EightImmortals on 03/04/2018 - 16:55

  +1

  Get a different accountant. You can (or you used to be able to) apportion ownership on the title deed according to which one of you needs the most deductions (say an 80%/20% split for example) . Your conveyancing solicitor would be the one to talk to about that. Just make sure both names are on the title in case something happens to one of you.

  • 

    foolsgold on 03/04/2018 - 17:12

    Hi I think I will look for one now.
    The conveyancer so far stated:

    Joint tenancy is the most usual type of holding where the joint owners are husband and wife or in a defacto relationship. With joint tenancy, upon the death of one of the owners of the property, their share vests automatically in the remaining owner, irrespective of the provisions and beneficiaries named in the deceased’s Will.

    With tenancy in common, the interest of the deceased owner in the property passes along with any other property owned by that person, as provided in that person’s Will. Further, it is technically possible to sell an interest as tenant in common independently of the other owner, which is not possible with a joint tenancy.

    I would think Tenancy in Common, even if 50/50 split would be the best, as we could sell each stake independently if something was to happen.

    Again, something I would have thought my accountant would have brought up.

• 

  vinni9284 on 03/04/2018 - 16:56

  +2

  Congrats on your purchase.

  "I conclude that my accountant is not the best person to get this advice from" + "on most tax advantageous" = Get another accountant

  Cheers

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  cypher67 on 03/04/2018 - 17:17

  Sounds like you have an accountant problem

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  foolsgold on 03/04/2018 - 17:23

  I think the general consensus is that my accountant is the problem. I'm googling some now. If anybody has any recommendations please free to message me or write here (I'm not sure what the policy is on Ozbargain)

  I'm just after a bit more than a nod from my accountant and him repeating the same information I said back to him.

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  Ocker on 03/04/2018 - 17:25

  Purchase in your wife's name only.
  Negative gear the property and you claim the total investment loss against her income for maximum tax break.
  When it suits transfer the property to joint names (there is no stamp duty payable in Victoria from transfer between spouses
  If you should get divorced the property would still be classed as a joint asset.
  Should your wife pass away then it is possible to ensure the property passes entirely to you.

  • 

    reno on 03/04/2018 - 17:30

    to extend on this, pending your financial situation, u could have property in wife's name only, whilst having a loan with both names
    just make sure you set up an agreement letter between the both of you that states although loan is joint, the loan is purely for the wife which means she can deduct 100% of loan expenses

    your (new) accountant would be able to provide more details etc on this

  • 

    foolsgold on 03/04/2018 - 17:37

    Not that my accountant gave me this information, but I thought there was stamp duty now?
    As Its not my principal place of residence, and purchased after 2017

    https://www.sro.vic.gov.au/spouse-and-partner-exemption

    I didn't know about purchasing in one name, and having the loan in both our names.
    Even though I have indemnity insurance, there is still some small risk which will grow as my clients grow over time. so will my risk. So not having this under my name will help a bit.

• 

  TheBilly on 03/04/2018 - 17:41

  +6

  I'm not an accountant or conveyancer.

  1. The tax advantage you speak of comes from the loss associated with the investment - the amount you loose on your investment becomes a tax deduction and reduces your taxable income by that amount (note it reduces your taxable income, not your tax). So if you are a joint tenancy (speak to your conveyancer) that investment loss has to be split amongst both of you equally 50/50 - If you want to split the investment loss and hence tax advantage differently to this, say 99% to her and then 1% to you, this requires a different structure. I forget the name of that different structure, but I think it's called 'tenants in common' and then you nominate the split as 99/1 or 70/30. This is all done through your conveyancer I believe.

  2. If you do anything other than a joint tenancy, if one of you die this will add a layer of complication. With a joint tenancy, if you die next month your wife just takes over full ownership irrespective of her circumstances and deals with the repayments as they come. If you have another structure like a 'tenants in common' and you die next month, then your ownership will have to be, not necessarily purchased back by her, but assessed back, if that makes sense. The bank will treat this as though she is purchasing your share and if her financial circumstance at the time does not allow for this, the bank may or may not grant the finance for your share depending on the circumstances at the time - potentially forcing a sale of the investment. The risk associated with this is not worth the financial benefit in tax you receive which is why most people default to Joint Tenancy.

  3. Based off item 2 above that is one reason why most people do not recommend anything other than a joint tenancy. The investment loss or subsequent tax advantage is not that great that you will really benefit from having a structure other than joint tenancy. Similarly, even though you do not need the tax deduction now, (somebody correct me) the tax deduction on an investment loss carries forward. So you are not actually loosing out on the tax deduction by splitting this with your wife 50/50 nor is she, you are just delaying the benefit of this to a later financial year until the deduction is required.

  4. A tax deduction reduces your taxable income. So you should always think in these terms. It does not reduce your tax paid directly and this is where a lot of people get boners over investment properties and think it is gods gift to the common man, it really is not. Yes it's better than nothing, but keep in mind you are actually loosing a lot of money to reap a marginal benefit of a tax deduction. For example, a a married person earning $100k per year pays about $23,248 in tax. If they had an investment loss of $10,000 on an investment property with their wife, and did not split the loss with her (99/1 split), they would pay $19,903 in tax, if they did split the loss 50/50, they would pay $21,478 in tax. So keep in mind they actually had to loose $10,000 on their investment to make back $1,770 if they split 50/50 or $3,345 if they did not. So you loose $10,000 but you make $3,345, so you still loose $6,655.

  5. Get a quantity surveyor to do a depreciation schedule for you. The cost of schedule is tax deductible and it will ensure you obtain the highest return in conjunction with ATO guidelines. A report costs $700 but it makes sure you are claiming all the items that you are eligible to claim on an investment property maximizing your loss. You then just hand this report to an accountant every year along with any additional costs that popped up.

  6. The only way you can protect the asset is by singular ownership under your wife's name or a trust (too complicated for me to understand). However you will then have serviceability issues and whether the bank will finance to a single owner, as being married with a kid on the way. If you do not join in on the application, the bank will note you down as a dependent and also the child, and then reduce your wife serviceability and hence borrowing capacity.

  7. Long story short, your accountant is a bum scab for not being pro-active, but on the flip side your situation is not really that risky nor high net worth to require any complex legal structures for risk mitigation and asset protection and tax minimization - which is probably why he is ignoring your request for information. I would just go with the standard practice - both of you buy an investment together, then just do a joint tenancy and live your life, as the financial benefit you seek is so marginal you will have a heart attack coordinating the process.

  • 

    foolsgold on 03/04/2018 - 17:51

    WOW thanks, you gave much more of an insight than he did, (maybe I shouldn't have had an appointment just before a long weekend)

    1. Yep, at the moment on paper she earns more than me, but that is also because I'm self employed and am able to claim a lot more expenses than she is, reducing my taxable income. This will change in I estimate 3 years, when if we are able to have kids, works less and hopefully my business continues on upwards trajectory.

    2.,3 Didn't know that thanks.

    1. When you put in it in these terms, with our incomes it doesn't make that much sense to change to anything other than 50/50

    2. Yep good advice, the house is too old to depreciate. I've bought it mainly for future development prospects.

    3. I may need to speak to my broker about this.

    • 

      TheBilly on 03/04/2018 - 23:19

      No probs, good luck with the purchase, Im also in my late 20's so I know how you guys would be feeling !

      I've bought it mainly for future development prospects.

      Can't contribute here, but definitely speak to a good accountant as the financial structure you choose to carry out your development will greatly impact your tax implication after you've done it and also your ability to borrow money before you even start. Join the property chat forums.

  • 

    [Deactivated] on 03/04/2018 - 18:37

    +3

    I'm not an accountant or conveyancer.

    But you probably should be

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  chumlee on 03/04/2018 - 18:45

  I hope you didn't just buy the investment property for negative gearing reasons as that's a bad financial decision.

  If you have a mortgage on your home you should pay that down first instead of redirecting your funds to a loss making investment, particularly if the housing market is cooling.

  Anyway you have locked yourself in now so best of luck. Remember interest rates will one day go back up to the 8%+ mark so prepare for that now

  • 

    foolsgold on 04/04/2018 - 11:50

    Purchased it mainly to redevelop it into to townhouses later on the track, maybe 6-10 years, been hard to find a similarly suitable property in my budget that met my criteria. This ticked all the boxes. The negative gearing benefits are very minor, if I bought something brand new with a depreciation schedule I could be doubling the benefits, but trying to look more long term.