A guide to establishing tax-savvy property ownership for couples
Setting up the correct property ownership structure – whether for an investment or owner-occupied property – held in partnership with a spouse or de facto partner, can significantly impact cash flow, net wealth and future investment opportunities.
Joint property ownership
Richard Sheppard, chief executive officer of inSynergy, says the way couples structure joint property ownership can have substantial implications on tax liabilities, cash flow and future borrowing capacity. “As a couple, you have options in setting up your ownership structure. It doesn’t have to be 50/50; you could opt for 75/25, 90/10 or even have the property solely in one person’s name,” Richard explains. “The tax benefits or costs are determined by the ownership structure, not the lending structure. This means it is determined by who is listed as the owner or part-owner of the property.”
When determining property ownership structures, couples should consider income tax, land tax and capital gains tax.
Tax considerations
For couples with similar incomes, Richard typically advises an equally shared ownership structure, with some exceptions like in NSW due to land tax regulations.
“Joint ownership spreads the capital gains and land tax across two incomes when you sell. This way, each person reports half the profit, ultimately reducing tax,” he says. However, when one partner earns more than the other, Richard suggests structuring ownership so that more of the property is in the name of the partner with the higher taxable income to maximise negative gearing tax offsets.
“While this may result in higher capital gains tax when you sell, it’s generally better for cash flow and risk management. You can own more property sooner and achieve more capital growth, which can counteract the potential downside of higher capital gains tax later,” he adds.
Investors should also monitor and manage changes in income levels and adjust loan structures or repayments to maximise tax benefits.
Land tax explained
All states and territories, except the Northern Territory, charge land tax once a property investment portfolio reaches a certain value. In most states, only the portion of a property you own contributes to your individual land-tax-free threshold. However, in NSW, the entire value of a jointly owned property contributes to the land- tax-free threshold.
“Essentially, in NSW, you are only getting half the land-tax-free threshold or paying twice the land tax,” Richard notes. “We usually advise having separate property ownership of two properties, depending on income tax and capital gains tax implications, so each person receives a land-tax-free threshold.”
When it does come time to sell, Richard suggests choosing the property that will least impact any payable tax if you have multiple properties.
“Joint ownership spreads the capital gains and land tax across two incomes when you sell”
Borrowing capacity
Future borrowing capacity and cash flow can be improved through appropriate ownership structures that improve tax benefits, according to Richard.
“Most lenders consider negative gearing and apply it against the income of whoever owns the property,” he says. “The correct ownership structure leads to better tax benefits, improved cash flow and enhanced borrowing capacity. This reduces risk by allowing larger buffers and creates opportunities for better future capital growth.”
Owner-occupied structure
Even for owner-occupied properties, Richard encourages couples to consider whether the property might one day become an investment.
“You generally can’t retire on one property, so it’s important to structure and plan your property investment with a long-term strategy in mind,” he advises. “Seek advice rather than navigating complex financial systems alone. Good advice from a property wealth planner or accountant can help avoid inefficient loan structures and save you thousands of dollars annually.”
Important note and warning: This information is general in nature and should not be considered advice. We highly recommend you discuss these concepts with your accountant, lawyer, property wealth planner and investment finance mortgage broker jointly to ensure any considered concepts are suitable for your personal financial situation, as one effect of the concept may negatively impact another part of your plan.
Richard Sheppard is the CEO and founder of inSynergy Property Wealth Advisory. inSynergy provides a broad range of professional services designed to assist with all aspects of property investment. Phone 1300 425 595 or visit insynergy.net.au
