Join our investing community

tenants in common - Different legal interest in the purchase of IP

Discussion in 'Accounting, Tax & Legal' started by amsaini15, 14th Jun, 2010.

  1. amsaini15

    amsaini15 Member

    11th Jun, 2010
    Hi All

    Myself and my partner would like to be joint owner of the our 1st IP purchase. Checking ATO website, we found out we may structure our purchase to have different legal interest in the property. I am on higher tax bracket and would benefit most if I can have 80% legal interest for negative gearing purpose.

    Can somebody please advise how can we be "tenants in common" to achieve above results. What are the present and future implication of such arrangement.

    ATO Article - NAT 1729 - Co-ownership of rental property

    "Dividing income and expenses according to legal interest

    Co-owners who are not carrying on a rental property business must divide the income and expenses for the rental property in line with their legal interest in the property. If they own the property as:

    - joint tenants, they each hold an equal interest in the property

    - tenants in common, they may hold unequal interests in the property – for example, one may hold a 20% interest and the other an 80% interest.

    Rental income and expenses must be attributed to each co-owner according to their legal interest in the property, despite any agreement between co-owners, either oral or in writing, stating otherwise."


  2. Rob G.

    Rob G. Well-Known Member

    6th Jun, 2007
    Melbourne, VIC
    Simply instruct your Solicitor to put your interests on the legal title explicitly as tenants in common in your desired percentage.

    In the future when your property is positively geared, most of the income will be in your name and taxed at a higher rate (unless you acquire some positive geared investments in your partner's name).

    In the future when/if you sell, most of the CGT will be in your name.

    In the future when you die, the property will pass to your estate to be fought over by lawyers for creditors, obscure relatives and just about anybody you have ever helped ... instead of passing directly to your partner.

    Your financial, tax and estate planning objectives need to be considered before signing anything.


  3. Nigel Ward

    Nigel Ward Team InvestEd

    10th Jun, 2005
    I wasn't sure if you've already purchased or not.

    If already owned:

    Step 1 - sever the joint tenancy. This will make you 50/50 Tenants in common

    Step 2 - transfer of 30% interest to spouse.

    There will be stamp duty (transfer duty) and titles office fees. Also will be potential CGT implications.

    Certainly do-able but you need to weigh up costs now vs tax benefits down the track.

    As usual the moral of the story is - set it up from the outset.

    Perhaps you can take this on board for your next purchase?

    To do the above see your solicitor.

    If yet to purchase:

    Instruct your solictor that purchase is to be as Tenants in Common and specify what percentage you'll each hold. That will be specified on the land titles transfer form.

  4. Dolfinwise

    Dolfinwise Well-Known Member

    30th Sep, 2009
    Buying IP in a Trust

    It may be of benefit to buy the IP in a Trust Structure that will allow you to control the flow of Income distributions (and capital gains upon sale) year to year as maximises your taxation position.

    However if the property is negatively geared and you have no other income producing assets in the trust this may not be a good idea as the income losses early on will be trapped inside the trust and will have to be carried forward rather than offset against other income.

    You should also consider the potential with a 30% deposit (including your exisiting Super) to buy it in a Superannuation fund which may mean you pay no capital gain tax upon sale of the property and you can both claim tax deductions for making contributions to the fund to help pay off the debt. There are also many other pros and cons of this approach depending on your ages, longer term plans and many other factors.

    Seek some advice before following either of these paths.


    Brisbane Financial Planners | Financial Advice | Financial Advisor

    The above consists of General Information only and you should seek licensed professional advice which considers your entire personal situation before acting based on the above information.
  5. amsaini15

    amsaini15 Member

    11th Jun, 2010
    Thanks Nigel and Jason !! So many different ways and I would not know any without you guys. I think I will go with the 50-50 interest at the moment. Thanks.