Investment Property Deduction

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  robbyjones on 09/02/2017 - 21:14

  If you mean can you offset the interest on on her cash holdings on the costs of holding the investment property then, yes, but just the interest not the principal.

  • 

    bargainbargain on 09/02/2017 - 21:24

    thanks.

    thats great. Would you know how to go about doing it i.e. do i need to set-up in a certain manner for that to happen?

    Right now, there is a loan against property that is in joint names as the property is in joint names.

    • 

      robbyjones on 09/02/2017 - 21:29

      From your post it is not clear to me exactly what it is your are wishing to do however keep everything relating to income and expenditure and have your accountant sort it at tax time. If you are yet to set anything up then you probably need to see an accountant to set up in the most cost effective way.

      • 

        bargainbargain on 09/02/2017 - 21:39

        Will try once again simplistically.

        Current situation property in name of H & W. H works (-ve gearing good) and W doesn't (-ve gearing not worth anything).

        Joint Loan of $50 against property worth $100 that is in joint names.

        W also have $20 in cash in her name.

        Is it possible to structure such that H can continue to claim interest deduction for $25 of loan (his 50% share) whereas W can offset her share of $25 of loan with the cash of $20 she has and ultimatley pay interest only on $5 of net loan (net of cash).

      • 

        robbyjones on 09/02/2017 - 21:56

        @bargainbargain: I see what you mean now. I am not an accountant but as far as I know the only way you can offset the loan principal with cash is to put it into an offset account however this will reduce the overall interest and you may then be able to only claim 50% of what the interest is, not 50% of what it would have been. You need an accountant.

      • 

        SaberX on 10/02/2017 - 19:54

        @bargainbargain:

        Your post still isn't clear enough.

        You can pay $20 of cash off against $25 of interest on your loan - yes. IN terms of straight payments and all. THat's just like making an interest payment.

        However, I think you have badly worded your request and instead your trying to ask that rather than she pay interest on $25 of cash in her tax return, she forgoes the negative gearing on the property in order to not pay interest on the property?

        The short answer is if she isn't earning money to even have income and negative gearing apply, then it doesn't matter what interest income she has to include in her tax return as you'd get it back anyway at tax time - as she'd be assumedly within the tax free threshold.

        As for what structure, if it's something outside the box or complicated, this is ozb: find a proper accountant who can charge you and be held to responsibility on the advice they give you.

      • 

        bargainbargain on 10/02/2017 - 20:59

        @SaberX:

        Am not sure what you meant by

        "The short answer is if she isn't earning money to even have income and negative gearing apply, then it doesn't matter what interest income she has to include in her tax return as you'd get it back anyway at tax time - as she'd be assumedly within the tax free threshold."

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  boomramada on 09/02/2017 - 21:40

  Talk to your accountant, by default, if its by join name. You can only claim 50% of the interest for your negative gearing, even if you fully or quarter pay the home loan.

  • 

    bargainbargain on 09/02/2017 - 21:51

    I am ok to claim 50% of interest for negative gearing but want my wife to offset her 50% of loan against the cash she has.
    Spoke to my tax guy but he hasn't got any idea.

    • 

      robbyjones on 09/02/2017 - 21:57

      You need a new tax guy, seriously.

      • 

        bargainbargain on 09/02/2017 - 22:14

        Pls recommend if you know of anyone in sydney.

      • 

        boomramada on 09/02/2017 - 22:48

        @bargainbargainl:

        Ask your mates or work mate, it's not hard to change a accountent either.

    • 

      ZippyRoo on 09/02/2017 - 22:55

      +2

      It depends on how you bought the property. If it was purchased as joint proprietors, then yes, you can only do 50/50 as far as the ATO is concerned. If it was setup as tenants in common, then you can specify the percentage at the time of settlement. Not sure if you can, or how much it would cost to change this though.

      However, regardless how you claim your negative gearing, the cash in your wife's account won't just offset against her share only. It'll reduce the overall interest paid on the joint loan account so your tax return will be impacted also. The only way is to separate your loan accounts which I don't think the bank will allow.

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        bargainbargain on 09/02/2017 - 23:21

        thanks for your informed response. It was joint proprietors for certain as I was told in some previous discussions that it is the default unless you specify.

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  Smulder on 09/02/2017 - 22:56

  +1

  You would need to you re-finance your loans so that you have 2 loans each in your individual names.

  You could claim the interest on your loan as a deduction against your share of the net rental income.

  She could offset her loan with her offset account, and thus claim a smaller deduction, or no deduction at all.

  However your bank may not be agreeable to lend to yourselves individually, nor to have 2 loans over the property each only covering a half-share.

  Also, you may have discharge fees on your existing loan which may limit any benefit you would receive from the tax deduction.

  You would also need to consider part IVA, which deals with tax avoidance.

  An unrelated consideration, be aware that if you rent out your property that was once your main residence you will have capital gains implications when you come to sell it. There are ways to reduce the capital gains, such as the 6 year main residence rule, however this is not always applicable.

  You should seek competent tax advice before you make any decision.

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    bargainbargain on 09/02/2017 - 23:20

    thanks so much for detailed response. It makes sense what you say. Seems like its going to be hard and not possible.

    • 

      derpdeder on 10/02/2017 - 07:20

      Please do not take that advice, it is patently wrong.

      There are a few ways to set up unequal deductions and drawing a loan per person is probably not the way. It comes down to your ownership of the asset - I am assuming your purchased the property as joint tenants which means all income and expenditure on the property is split 50/50.

      To claim unequal deductions, you need to change your ownership structure. Some of which will incur stamp duty. Tenants in common or some trust structures will allow you to achieve you goal of unequal deductions.

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  spal on 10/02/2017 - 08:10

  +1

  Using your example:
  Without any changes:

  H
  You know your situations so no issues.

  W
  Income 50% of the rental income + Interest Income from $20
  less deductions(W's 50% share of the interest, depreciation and all other property expenses as 50% owner). All deductions are required to be claimed on the basis of ownership interest in a property.

  Without any changes, what this would mean is that W will have higher deduction then the taxable income. Essentially meaning that no tax is payable. There is no refunds for excess of deductions over income. Also remember there is no tax anyway on the income below the tax threshold.

  You don't have to split the loan to do any of this. The splitting of your expenses is based on the ownership interest in the property.

  Suggested change:
  IMHO the best outcome for you would be to transfer the property entirely in your name. This would get the maximum benefit out of the negative gearing advantage, as you will be able to claim all deductions. Transfers between spouses are exempt from stamp duty in Victoria (check in your state). However, you will have to pay one time fees to register the title and breaking and re-registering the mortgage with the registrar's office.

  Once your circumstances change and W commences work you can do the same in reverse (costs would be involved again).

  Be aware and make inquiries on any other circumstances which may need to be factored in before you make these changes. Including make sure you speak with W and explain the reasons.

  W's interest income is taxable, but at $20K it is going to be below the income tax threshold and there wouldn't be any tax payable by her.

  H will have to declare all rental income as his income, and will be able to claim all deductions against his taxable income.

  I suggest that you don't take my word for it, but show this note to any accountant/lawyer friend who is savvy with these things.

  Also discuss with W if she is going to be OK with the property in your sole name (although, in your will the property could be left to W anyway).

  Hope this helps.

  Cheers.

  • 

    bargainbargain on 10/02/2017 - 09:07

    thanks for your note.

    I was in NSW and was told by my mortgage broker that to transfer the property in my name it will incur stamp duty of $20k plus some other minor expenses. Seems like a fair bit of upfront cost and it will be quite awhile for me to breakeven as that $20k is essentially lost.

    Yes on her cash she doesn't pay any tax as it is below the threshold.

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      spal on 10/02/2017 - 22:42

      I would suggest that you don't rely on this mortgage brokers advice. Transfer of residential property is exempt between married and defacto couples under section 104B of the Duties Act.
      https://www.google.com.au/url?sa=t&source=web&cd=1&ved=0ahUK…
      You need to fill up the form for the exemption which is available from OSR NSW website. If you have any questions can OSR direct for free advice.
      On another note maybe investigate possibility of getting a new broker. Wonder what else he has been giving you advice on.

      • 

        bargainbargain on 11/02/2017 - 20:40

        thanks. thats very helpful. I will investigate this further and may be the pathway to get to the outcome i desire.

      • 

        bargainbargain on 13/02/2017 - 09:18

        For everyone's benefit, spoke to a solicitor this morning.

        The above exemption provision is to cater to the scenario below

        1. Someone bought a property as a sole owner (100% ownership)
        2. Found a partner later or got married and want to share the ownership with the partner equally ("equally" is important here)
        3. Place is PPOR
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  Peck on 11/02/2017 - 10:36

  Sooooo confusing in outlining your problem = get an accountant.

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  weezlebub on 22/02/2017 - 10:47

  In ozbargain style, i had a great system when I was engaged (a bit different when you're married as there's paperwork).

  House in my name, her work allowed salary sacrifice for rent
  She was tenant
  50% of house deductible
  Her rent paid pre-tax
  Everyone wins!

  • 

    bargainbargain on 22/02/2017 - 15:12

    Awesome man !!

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  coolhead on 22/02/2017 - 10:58

  i don't think so.. i think if your wife has 20K that would go under the complete loan (since loan is in joint name)..
  SO your net loan will be 30k on which you will pay interest…
  15k - H claims -gear
  15k - W cant do much about it..