tax question from Mrs Voigtstr

Mrs Voigtstr wants to know the tax pro's and cons of putting the villa unit we are living in, in both names. (the villa unit will become a rental when we buy our next home (early 2009))

Currently its in my name only. We both earn approximatly the same amount of cash per year. The next house (which will be our ppor) we will buy in both names (we'll do the debt recycling thing to get deductable). I was thinking that the next property could be in her name only (if serviceability allows) so that tax deductions would be about even for all properties.

Is there any benefit to putting the villa unit in both names? It will cost us stamp duty to do so wont it?

What other info do you need to be able to provide a more definitive answer?

 

I don't know what the laws are like in Tasmania, but most states, at least in NSW, if PPOR and transferring to you spouse as joint tenants, then there is no stamp duty. (Not proper advice, should do your own research)

If you are later making it into an IP, it is going to be negatively geared or positively geared? Or it is going to be sold for big profit(CGT)- then you should think about the tax consequences.

 

Thanks Hiflo, It will be negatively geared to begin with, offset by Navra income and depreciation (it was constructed in 1992).

Mrs Voigtstr believes that any change in title incurs stamp duty, but she'll try and find the exact legislation on the treasury website to confirm.

 

hi voigstr,

I would also be looking at your future plans for the property, how much you both believe you will be earning in the future, etc.

Mark

 

The future plans for the property are to be a IP. We dont intend ever selling property. Both incomes we expect to increase with inflation, but I dont expect any big raises, I dont expect any big raises in Mrs Voigtstr's pay either. There is the small possibility that she may decide to work part time and stay home with kiddies (that would be a few years off though).

 

No CGT on (partial) transfer of title for a main residence.

BUT GET THE OWNERSHIP SHARE SORTED BEFORE IT CEASES TO BE YOUR MAIN RESIDENCE AS IT IS A CGT EVENT.

Not clear from your post, but if you end up with two IP's and no main residence then you can nominate your old main residence to get exemption for up to six years (if always had been your MR). If you re-establish as your main residence then the clock is reset, otherwise the main residence ceases pro-rata.

Don't know about stamp duty for Tassie but most states have abolished this for transfers of property between spouses by now as part of getting their Federal GST handouts.

Ownership of property as Joint Tenants invokes the right of survivorship. One dies and their share passes to the survivor without going through their estate where it could be grabbed by obscure relatives or unknown ex-spouses or creditors. It does not have to be equal share but it is presumed where no other evidence.

However, registering joint names on shares etc. can be a real nuisance as everyone insists on both signatures. There has been cases with husband & wife where they argued joint owners because income is declared jointly from the start even though only one legal owner. Need to check this.

You need to check these facts for yourself, and decide what is appropriate for you.

Cheers,

Rob

PS Still haven't photo'd that bike yet.

 

The next property will become the ppor in both names. The Villa unit we are in now, will become the investment property.

Found the exemption for stamp duty

stamp duty

So it looks like it wont cost money with government to change ownership to joint ownership. If we do this does it mean a 50/50 split on any tax deductions (once its a rental property?)

 

Main residence is often held as joint tenants as there is not much tax to consider.

Investment properties are often held as tenants incommon in the percentage ownership. This percentage is used for declaring income, deductions & CGT.

Often positive geared investments are exclusively held by the lower tax rate person & negatively geared exclusively held by the higher income earner - but remember that investments often become positive over time.

NB joint tenants and tenants in common may be able to claim ALL deductions in one name if done through salary sacrifice - see Julia's Bantacs booklet on real estate.

Lawyers like tenants in common as the asset passes to your estate and your will can set up a testamentary discretionary trust to distribute in the most tax effective manner.

e.g. If children are expected then assets could be held in trust and income distributed to minors without incurring penalty tax and so split income through the family. If the property is just left to your spouse then income is all in her name before being used to support the children.

However, wills are open to attack by people claiming a right to be considered and so should be planned carefully.

Sooooo .....

By putting your current PPOR in joint names becomes important when it subsequently becomes an IP.

Sort this out while it is your PPOR to avoid subsequent CGT on changing your mind.

Think about if the next PPOR becoming an IP in the future as well ...

Sorry but I don't want to get into specific scenarios as this becomes advice regardless of any disclaimers.

Pay for good advice specific to your circumstances, it is worth it in the long run.

Cheers,

Rob

 

Thanks Rob.