Join our investing community

Money in my offset, zero debt, wife to invest the spare cash ?

Discussion in 'Real Estate' started by GunnerGuy, 28th Mar, 2012.

  1. GunnerGuy

    GunnerGuy Index & Property Investor

    Joined:
    26th Sep, 2008
    Posts:
    65
    Location:
    Kuala Lumpur, Malaysia
    All,

    A quick scenario. I think I know the answer, however is there a way that I can manage it better to make a gain ? See what you think

    Facts
    - 1 IP (owned 50/50 with my wife) , value is $1,000K, (original & current) loan is $450K, offset has $450K cash thus no net debt. Net rental 'profit' after all costs is $30K.

    - 1 PPR (owned 50/50 with my wife) , value $1,000K, loan is $250K, offset has $250K cash thus no net debt.

    - I work and my wage is well in to the 45% tax bracket. Wife does not work.

    - I dont want to buy another IP.

    Question
    Is it worthwhile taking the $450K out of the IP offset and investing it in my wifes name ?

    Costs = $450k * 8% (loan rate) = -$36K.
    Rental Income = $30K.
    Net Losses = -$6K (split 50/50)

    Wife: Gross return on investment = $450K * 6% (from fixed interest account NOT capital gain) = $27K. Rental loss = -$3K. Gain = $24K. Tax = $2700 ($24K - $6K the threshold = $18K * 0.15%) Final Gain = $21300.

    Me: Gross income goes down by $6K, I will get a tax refund of 6K x 45% = $2700.

    Combined after tax gain = $21300 + $2700 = $24000
    Cost of borrowing = $36000
    Result of scenario = $12000 losses

    So in short I make a loss if I negatively gear my property by taking cash out of the offset and letting my wife invest it, and share the losses from the negatively geared IP.

    Is there a way that I can use these assets and a legal tax management strategy to gain from the equity available in the properties ?

    Gunnerguy.
     
  2. Terryw

    Terryw Well-Known Member

    Joined:
    9th Jun, 2006
    Posts:
    653
    Location:
    Sydney
    Sounds like you are doing well and have some spare cash to invest as well.

    But you don't have a discretionary trust set up. Have you considered the benefits ( and drawbacks?) of using a trust?

    Where do you park your income now? ie your offsets are full.

    I think if you use a discretionary trust to own a new IP then with your spare income and rent you can pay it down - or use the offset - quickly. Profits can then be diverted to your wife or other family members, or even a company to cap the rate at 30%.
     
  3. GunnerGuy

    GunnerGuy Index & Property Investor

    Joined:
    26th Sep, 2008
    Posts:
    65
    Location:
    Kuala Lumpur, Malaysia
    Thanks for the idea Terry.

    I have thought about a discretionary trust and distributing profits based on tax rates of the beneficiaries. It is depinately an option.

    I use to have 4 IP's but have reduced to 1 IP and 1 PPR. I am concerned about housing over the next 2-4 years and I want to ensure my wealth is retained and diversified. Already having 2 houses in expensive suburbs means that I already have about 60% of our/my wealth in houses at the moment. That is all I care to do at the moment. Fixed Interest is giving me 6% which is pretty good, low risk, and as I believe that housing in the medium term will not grow at anything significant over 6% I think FI for a while is pretty good when you include stamp duty on house purchase and Capital Gains if/when we sell the houses - especially when i am in the 45% bracket.

    So ..... how can I use the equity in the houses tax efficiently since my wife is not earning ..... :) ?