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Buying Property Together: Tax Considerations For Couples In Australia

Buying Property Together Tax Considerations For Couples In Australia

When couples in Australia decide to buy property together, understanding the tax implications is critical.

The ownership structure you choose can significantly affect your financial outcomes, including income tax, land tax, and capital gains tax (CGT).

Without the right approach, you risk higher tax liabilities and missed opportunities for savings.

Let’s delve into the key tax considerations couples should keep in mind when purchasing property together.

Choosing The Right Ownership Structure

Couples can own property as joint tenants or tenants-in-common, and each structure has distinct tax implications:

  1. Joint Tenants:
    • Ownership is split equally between the two parties, regardless of individual contributions.
    • Rental income and expenses must be split equally for tax purposes.
    • On death, the property automatically passes to the surviving joint tenant. Capital gains tax is calculated based on the deceased’s original acquisition cost.
  1. Tenants-in-Common:
    • Ownership can be divided unequally, such as 70:30 or 60:40.
    • Rental income and expenses are divided based on the ownership proportion.
    • Upon death, the deceased’s share is transferred through their estate, not automatically to the surviving owner.

Selecting the appropriate structure depends on your financial goals, income levels, and long-term property plans. It is essential to align the ownership structure with your tax strategy to maximise benefits and minimise liabilities.

Income Tax Considerations

The ownership structure you choose will determine how rental income and tax deductions are allocated:

  • Equal Income Levels: If both partners earn similar incomes, a 50:50 ownership structure may be advantageous. It spreads the rental income and deductions evenly, ensuring both partners benefit equally.
  • Unequal Income Levels: If one partner earns significantly more, allocating a larger ownership share to the higher-income partner can optimise negative gearing benefits. This approach increases tax offsets for expenses like interest on loans, although it may result in higher CGT when selling the property.

Couples should also consider future changes in income levels and adjust ownership structures or loan arrangements accordingly.

Land Tax Rules

Land tax applies to investment properties when their value exceeds a certain threshold. Each state and territory in Australia has specific land tax thresholds and rules, including how jointly owned properties are assessed:

Tax Year General threshold Premium threshold
2024 onwards $1,075,000$ $6,571,000
2023 $969,000 $5,925,000
2022 $822,000 $5,026,000
2021 $755,000 $4,616,000
2020 $734,000 $4,488,000
In NSW, the land tax-free threshold is divided between joint owners, effectively halving the benefit for each. To minimise land tax in NSW, couples might consider owning separate properties rather than jointly owning a single property. This approach allows both individuals to utilise their full thresholds.

Capital Gains Tax (CGT) Implications

When selling a property, CGT is calculated based on the gain made since the property’s purchase.

The ownership structure determines how the CGT liability is split:

  • Joint Ownership: The gain is divided equally between the two owners, potentially lowering the individual tax burden.
  • Tenants-in-Common: The CGT liability is split according to the ownership proportions, which can be beneficial or detrimental depending on the owners’ tax brackets at the time of sale.

Additionally, the CGT 50% discount applies if the property has been held for at least 12 months. For joint tenants, the surviving owner is considered to have acquired the deceased’s share at the original purchase date for CGT purposes, preserving eligibility for the discount.

Borrowing Capacity And Cash Flow

Ownership structure also impacts borrowing capacity and cash flow. Lenders assess the taxable income of the property owner when considering loan applications:

  • Allocating ownership to the higher-income partner can enhance borrowing capacity by leveraging negative gearing benefits.
  • Improved cash flow from tax savings allows for better risk management and greater financial flexibility.

By carefully planning the ownership structure, couples can optimise their financial position and achieve long-term investment goals.

Owner-Occupied Properties

Even when buying a home to live in, it’s wise to consider the potential for it to become an investment property in the future. Planning the ownership structure with this possibility in mind ensures tax efficiency and prepares you for changes in circumstances.

Long-term strategies should include:

  • Evaluating whether the property might eventually generate rental income.
  • Structuring loans and ownership to align with potential future tax benefits.
  • Seeking professional advice to navigate these complexities effectively.

Importance Of Professional Advice

Understanding the tax implications of property ownership can be challenging, particularly when multiple factors such as income levels, land tax rules, and future plans are involved.

Consulting a property investment advisor or tax expert ensures your ownership structure aligns with your financial goals.

These professionals can:

  • Help you select the most tax-effective ownership structure.
  • Provide guidance on optimising negative gearing benefits.
  • Minimise risks associated with changing income levels or property values.

Get Expert Tax Advice Today

Understanding tax rules for buying property together can feel overwhelming. KPG Taxation is here to help! Our team provides simple, clear advice to make sure you save on taxes and stay compliant. Contact us now to get started on the right track.

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