Hi,
I’ve just done a search of this site on issues to do with tenants-in-common and have seen two comments from people saying that if you split a property 99/1, the ATO will see this as tax avoidance (which of course it is really is but that’s beside the point..).
Does anyone have any firsthand knowledge that this is the case and if so, what happens – do you have to retrospectively pay extra tax? I am about to go 99/1% tenants-in-common with my partner after both my property accountant and solicitor said this was the way to go. I’m now getting confused as to whether this is a legal loophole or not….
Thanks,
AnastasiaAnastasia,
Thanks for the question because after doing some searches on the ATO web-site, I think I have an answer for you. (And added learning for my benefit!)
This is an exert from Taxation Ruling 93/32 Income Tax: Rental Property – Division of net income or loss between co-owners.
If Mr and Mrs X owned the property as tenants in common with Mr X holding a 30% interest and Mrs X holding a 70% interest in the property, they would be assessed on any profits or losses from the property in accordance with their respective interest in the property, i.e., Mr X on 30% and Mrs X on 70%.
Therefore it sounds like your advice is consistent to what the law is.
James
there is a big difference between 30% and 70%
and 99%…..It would be viewed as tokenism, a way of avoiding something……lets face it two peoples names on the legals, makes for interesting debt collections….
but then again, one person defaults….can you imagine the arguements over this one…sounds like trying to save something to me…..lol
[
]sorry, im sure its legal, but gee looks like avoidance issues to me…sorry er structuring ones finances…to suit ones circumstances…[
]Elves,
In the other example and wording from that ruling, where private arranagements between the parties to fund the purchase are not affected for income tax purposes. Therfore if you purchase an IP as joint tenants, the ownership is 50-50. If one person brings 80% of the funding, the ARO does not recognise these private arrangements. Therefore, net profit and losses from the property should be shared in the same proportion as their ownership interests.
If one decides to purchase, with legal interests as 99/1, than whilst it is designed to minimise tax, I cannot see how the ATO can stop it, without saying that purchasing as tenants in common, with a split of greater than 90/10 one way is now illegal.
However, there may be others who have delat with the pointy edge of the ATO sword on this matter, who maybe able to share their experiences??
James
The ATO often issue decision points to clarify some of their confusing rulings…which confuse people even further.
Me, I know nothin’!
But I know about the apportionments….I am skeptical, cynical…lol must be workign for the govt!
Cheers
Elves
Hi all
i bought a property tenants in common 95/5 it is quite legitimate and had no problems with the ATO.
If you sell the property then that higher income person would be paying more tax. One way or the other they win.
regards
alfThanks for the responses guys,
Alf – great – that’s exactly what I wanted to hear!
James – I think I agree with you – if the tax rule gives an example of 70/30 and doesn’t specify any limits, I don’t see how they can have a problem with 99/1. Shall quiz my accountant on this one more time though, just to make sure.
Ciao,
AnastasiaPS Elves – although it seems like tax avoidance, I don’t see a lot of difference between doing this and couples who put entire properties in one person’s name for tax reasons – which is an extremely common event. At least by doing a tenants-in-common split, you are taking some legal responsibility (albeit only a tiny bit…)for the debt!
It would seem that what Anastasia is proposing is not for the primary purpose of tax minimisation, but probably for some other valid reason eg to protect assets as the 1% owner might be at risk of being sued, or to make it easier and cheaper for the 99% owner to borrow as both parties are in the finance application rather than having personal guarantees involved.
I’ve been told that 99/1 is a good way to ensure that the 1% person is on the finance application, and therefore could get the deal across the line. As opposed to guarantors and stuff which are much harder to do these days.
Cheers
MelAs far as I know, 99/1 isn’t an issue with the ATO so long as profits are divided appropriately.
However, be aware that some Lenders will shy away from this. Not all, but definitely some! I recently helped 2 brothers get finance. Only one was on title, and they needed both incomes to refinance to get some equity out for investment.
We had to quietly suss out a couple of lenders before the twins settled on their eventual approach.
Max Hugen [email protected]
Alpha Financial
Residential & Commercial Loans
http://www.alphafinancial.com.au
02 9560 3061
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