Hi all,
I am just about to puchase an IP. I am the sole income earner in the family – my wife looks after the children.
If I purchase the IP in my name then I get the “benefits” of negatively gearing the property against my income but when I sell the property I will be paying capital gains tax at the highest marginal rate.
Alternatively if I purchase the property in my wifes name we will benfit from a capital gains perspective (assuming a successful sale in the future) but will not be able to write off the loss (rent v’s interest on loan) against her income.
What I am thinking of doing is purchasing the property in both our names (allocating 99% of the property to me and 1% to my wife).
MY QUESTION IS can I do this and before selling the property in the future change the ownership of the IP (to 99% my wife and 1% me) thus getting the best of both worlds…
I would appreciate the advice of any experts out there – as you can probably tell from this question I am new to the investment game.
Best Regards,
Andrew
Hi Andrew
I am no expert, but would expect if you did this you would be paying stamp duty on 99% of the value of the property when you switch it over again.
A far better option may be to look at a Hybrid Discretionary Trust to own the property. This will enable you to claim the negative gearing benefits and for your wife to get the capital gains if selling – and the flexibility to change this around and/or distribute to other family members/companies on lower incomes.
Better talk to a good accountant about setting one up.
Terryw
Discover Home Loans
Parramatta
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Andrew,
The hybrid trust structure is ideal for your situation, gives you the flexibility to gain maximum tax advantage of negative gearing now, and minimum tax liability of capital gains later.
Expect between $800 & $1,500 for the trust plus up to $1,500 for a corporate trustee.
Originally posted by andrew_dc:Hi all,
I am just about to puchase an IP. I am the sole income earner in the family – my wife looks after the children.
If I purchase the IP in my name then I get the “benefits” of negatively gearing the property against my income but when I sell the property I will be paying capital gains tax at the highest marginal rate.
Alternatively if I purchase the property in my wifes name we will benfit from a capital gains perspective (assuming a successful sale in the future) but will not be able to write off the loss (rent v’s interest on loan) against her income.
What I am thinking of doing is purchasing the property in both our names (allocating 99% of the property to me and 1% to my wife).
MY QUESTION IS can I do this and before selling the property in the future change the ownership of the IP (to 99% my wife and 1% me) thus getting the best of both worlds…
I would appreciate the advice of any experts out there – as you can probably tell from this question I am new to the investment game.
Best Regards,
Andrew
My question is: why sell it at all? why not keep it forever and use the increasing equity to fund other income producing assets?
Cheers,
Marc.
[email protected]Marc, I agree, but you never know how things will change in the future, so best to prepare just in case.
Terryw
Discover Home Loans
Parramatta
[email protected]
Sign up to my mailing list.
Just send me a blank email, with “subscribe†in subject line.Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hi all
Terryw – why do you always recommend a hybrid trust rather than a discretionery trust ?
They are cheaper approx $600.00 and simpler.
Celeste
Hi Celeste, Terry was right in that an ordinary discetionery trust is ineffective to allow negative gearing, assuming the individual has the finance arranged in his/her name (not the trust).
Other HDT benefits are
* the ability for other “lower income bracket” unit holder to buy back the units later for CGT reason,
* and of course, asset protection.
Hope it helps.
CT
Hi
I think hybrids are better for 2 reasons.
1) allows negative gearing
2) refinancing principle.But hybrids are less effective in the area of asset protection. This is because the units are property. If the unit holder is sued, these units could be at risk. However, a well drafted deed will allow the trustee to bypass distributing income to the unit holder. But it can complicate things.
I am not an accountant, but think, the refinancing principle allows the trust to borrow to buy back the units, and this may enable deductible debt to be converted into deductible. So even if you are not negative gearing a hybrid may still be useful.
Terryw
Discover Home Loans
Parramatta
[email protected]
Sign up to my mailing list.
Just send me a blank email, with “subscribe†in subject line.Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hi all
Sorry I keep forgetting about the neg gearing aspect of a discretionery trust.[blush2]
I will go back to sleep now.
Celeste
Hello
Im not really familar with Hybrid Trusts, so hoping someone may be able to let me know if it will work for the below:
Example:
1. I purchase a property (say to renovate and sell)
2. Set up a Hybrid Trust with myself and a company as beneficiaries
Can I negatively gear the debt whilst holding the property against my PAYG income, and then when I sell distribute the CG to the company as it will the pay less tax??
If I end up holding the property for longer then 12 months, would the trust get the 50% CGT exemption??
Cheers
Reece
I beleive that would work, ie you can negative gear against your personal income and distribute the capital gain to any beneficiary including a company, but remember the companies do not get the 50% discount on CGT.
Terryw
Discover Home Loans
Parramatta
[email protected]
Sign up to my mailing list.
Just send me a blank email, with “subscribe†in subject line.Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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