Hi All,
Quick scenario – A & B want to buy a property together, so both property and loan are in joint names. A buys it as an IP, B buys it as their PPOR.
I'm curious to find out what the tax consequences would be, especially for A (and any other consequences)? I'm guessing they can claim it as a tax deductible asset and loan, as it's for investment purposes, but they're really not receiving any rent from the property either. Both owners pay their share of ownership, but it's more of a loss to A, as they see no rent from the place. I would think B has the better end of the deal? Both people would not be living together. I would assume in that case B would not be taxed, as a portion of the house is not leased out, nor are they receiving a rental income from it.
However, if the property is sold and profits are split 50/50, I'd like to know what the CGT would be in this situation? A would get taxed, I assume, but B would not? Would the ATO distinguish between the two sellers who had different intentions with the property to start with, and used it for different purposes?
Thanks!
Hi Shangrila,
What an interesting question !! I will be intrigued to read what those who KNOW can provide.
As a layman, I see a problem for the party that owns "half as an IP, yet doesn't draw any rent, and lives in it". To me, that makes it NOT an IP at all, but a PPOR. But then, "maybe" they can own the other person's half, and rent their half from the other party. That would then leave the other party NOT in their PPOR, but "renting" the IP owner's half.
Wow – it is a minefield, and not one I can easily see a way out of. But let's hear from others who know….
Benny
Are you saying that A is NOT living there? So is B living there rent free? Why?
In this case A cannot claim it as an IP because it has to be rented at market rent in order to claim tax benefits.
If A is living there this is NOT possible. A cannot claim it as an IP. To claim tax benefits it has to be an income producing asset. It is not therefore it is NOT an IP.
Yes, Catalyst – A is NOT living at the property. B is living there rent-free (in that they don't pay rent to A), but they're paying their share of the mortgage (rent to the bank).
I understand if A is living in the property, then it's a PPOR, not an IP. A pays their share of the mortgage too, but see no rent as such from B, as it's B's PPOR (why would B pay rent to A when they're paying a mortgage for their 50% share?). I see what you mean, though. No rent = no tax benefits can be claimed. It's as simple as it gets, I guess.
Reading through the scenario again, it would appear B is getting the better end of the deal, as they would be paying their share of the mortgage, living in a property that's their own PPOR (which then has no CGT when they sell), so A has no benefit whatsoever. The only thing I can think of is that A would be of use to B in being able to obtain the loan in the first place, as A's serviceability isn't great from a bank's perspective.
Thanks for the input!
I had to read that 4 times but you just made that really complicated.
so long as A and B are not married. Then they have individual tax returns. which means independent conditions.
if B lives In their half then they get there PPOR excemption.
if A rents there half they get the negative gearing tax benefits and being able to claim half of the expenses. If they are renting half the house to another person, person C.
thats the only way they would be able to claim any form of tax deduction or claim expenses.
If you are trying to improve bank servicablity. You can purchase as a IP count the rent as Servicablity and perhaps in a couple months you change your mind and move in.
I can't see a viable reason why B would buy half a house to let someone live in it and not get any benefit. Unless it is a mother helping a child etc.
It's just like throwing money away. They are paying half a mortgage for nothing (well there may be CG).
No rent, no deductions!!
For tax purposes just consider A and B each own different properties.
If A is living in it A could claim it as the main residence-usually anyway.
If B is not living in it then B could not claim it as the main residence.
If B is not getting market rent then no deductions.
If sold B would pay CGT on the profits, but this may be able to be reduced with costs not otherwise claimed – such as interest.
Consider also whether they own it tenants in common or joint tenants.
What if A dies?
What if B dies?
Could A will their share to C? If A died it could be B and C who end up owning – does B know C? What about D? D is C's spouse and they are separating and D put a caveat on title because E told her to. E is D's defacto partner. But E is still married to F. E and F had children but it turned out that G was the father. H was the surrogate mother…
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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