When you buy an Investment Property one thing you need to work out is who should own it? In come cases this is a simple question, for example if you were buying a property as a single person then your only options are to buy it in your name or to use a structure like a Company or Trust. In this article I am not going to talk about using structures like Trusts, just buying property in your name.
The most common ownership of Investment properties in our practice is Husband & Wife owning the property together. What you may not realise is that there are two different ways to do this you can;
- Buy the property as what is called Joint Tenants. This is most normal in husband and wife situations and in this case both owners are entitled to 100% of the property if the other party dies.
- Or buy it as Tenants in Common, this is more like buying a share of the property, you might own 50% of the a property each or 30% / 70% or any combination. The ownership stakes are clear and defined when you first buy.
There are legal benefits and disadvantages to either structure, please get legal advice if you would like to learn more about the legal benefits of either structure.
Some people (including some Accountants) feel that because of the way joint tenancy operates that they can vary the % of ownership between husband and wife for example putting 99% of the rental income (or loss) in one spouses name and 1% in the other. When you buy a property as Joint Tenants varying the percentage like this is not actually legal, from a tax point of view if you are Joint Tenants then you must split all income, losses and capital gains 50/50. This is set out in the ATO’s ruling TR 93/31 and supported by a range of legal cases.
If you do want to split the income from a rental property in a set percentage like 99% / 1% or 80% / 20% (or whatever suits you situation) then you need to buy your property as Tenants in Common.
If you would like advice about your situation please contact our tax experts here