Ownership of a property may be divided between co borrowers in varying percentages.
The decision about who will own the property and in what proportion is normally focused on individual incomes and marginal tax rates, therefore minimizing tax burden and maximizing rebates.
However, it’s also important to consider the future. While one party to the contract may be the lower income earner now, their future potential may be very different and depending on the time horizon of the investment, they may need to sacrifice some rebates now to benefit from more significant returns in the future.
Exit strategies are also to be factored in. Capital Gains Tax can be minimized by timing the exit in line with periods of lower earning – planned absences from the workforce or retirement goals may influence the ownership split nominated now.
Ownership splits of 99/1 to secure the very large majority of claims in the highest income earners name are now frowned upon by ASIC. They mandate that a borrower must stand to gain a ‘distinct benefit’ from being a co borrower and 1% no longer amounts to that in their view.
To have a 1% interest and liability still means that borrower is jointly responsible for the entire debt and they must seek independent legal advice before committing to such an arrangement. the accounting costs for a 1% benefit is also contrary.
The minimum is now a preferred 80/20 split.
In the case where a couple decide to have the property 100% in the higher income earners name, if the equity offered to secure the purchase is jointly owned, the other partner will be required to be a guarantor, jointly responsible, for the loan.
Deciding on the ownership split is a decision best made in conjunction with your accountant and mortgage broker.
A couple buying together will be asked to specify whether they are to be:
Joint tenants hold the property equally between them and the income or loss from the property will also be split equally
2.Tenants in common
Shares in the property can be uneven (keeping in mind the lending and regulator’s guidelines) and so the income and tax benefits are attributed according to percentage ownership.