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  • Tax returns & ownership

    Hi guys

    just going through compiling info to do our tax returns and came up with a few questions:

    1 Does it matter whose name is on the mortgage/ownership of the property? (I guess I should say the properties are simply in personal ownership)

    In particular since of our 4 properties two are very positive and two are so/so we would like to allocate the first two to my wife since she has a low taxable income and the second two to me because I have a higher income.

    Is this possible or since both our names are on everything do we have to split them 50/50?

    2. Suppose the answer to the first question is yes, can you change things in the future? ie if my wife gets a high paying job and I become a house husband can we then reverse who gets what for tax purposes?

    3. If through the magic of depreciation you made a loss greater than your income for the year, could this be carried over into the next year?

    Looking forward to your response

    (ps I know I know ask an accountant... We are trying to avoid having to pay the fees and although my wifes mum is trained as an accountant, we aren't sure we trust her advice...)

    Cheers David
    New to property investing? See: Best PropertyTalk Threads for New and Old Investors And/Or:Propertytalk Wiki


  • #2
    Hi Monid

    The rich say that you need a network of people who work for you- accountant, lawyer, bank manager, Real estate agents, mortgage broker etc.
    By having this group of people working for you, leaves more time for you to make money investing in property.

    What is your time worth doing your own tax returns?

    I have an account who does my returns. Before starting in property investing I researched what the best set up for us was going to be.
    We set up a family trust and have a LAQC running in conjunction with the trust. Of course this was set up by our lawyer.

    Then we used a mortgage broker to organize our loans.

    I pay of course(tax deductible), but my returns for the 2003/4 year have already been done and I know how much of a tax return/bill we are going to get.
    Therefore having this set up allows us more time to spend sussing out more good property deals.

    I suggest you get yourself a good accountant dealing with property investors and chew the fat with him.

    Regards
    "There's one way to find out if a man is honest-ask him. If he says 'yes,' you know he is a crook." Groucho Marx

    Comment


    • #3
      Thanks for the reply Muppet

      I did think about the time committment, but since we like to keep a tight track on things anyway it is simply a matter of transfering figures from excel to the IRD forms.

      To be frank, we are (at least at this stage ) not the "rich" and while the accountant's fee is deductable you still have to pay the bulk of it especially if you are like us where my taxable income (not including IPs) was a measly $14000 and my wife's was $17000. (Now I know alarm bells will be ringing for some of you at this but we have fairly hefty untaxed income such as my scholarship, so we can live )

      Basically I see the accountant's fee as another $600 I won't be able to pay off the equity on our own house when it comes up for refixing at the end of the year. Just raised tight I guess...

      There are three arguments for going to the accountant that I can see:
      1. Time
      2. Saves Money
      3. To gain Knowledge


      1. Time
      right now the one resource I have in spades is time so I might as well use it myself and in any case once I have a bit more info as I said above it shouldn't take too long.

      As you point out I could use this time to look for more good property deals, at the moment I am intentionally not looking, we are pretty much maxed out in equity LVR %76 And I don't want to find a great property which we can't buy. Basically our plan till next year is to sit back, pay off equity and start looking again next year.


      2. Money
      Now if I thought the accountant would save me at least their fee in taxes then sure I would use an accountant but I don't see them saving me much more money than I can myself, we are a fairly small scale operation at this stage. Actually if there are any accountants reading this that would be a gutsy advertising move, guareentee that if your customer doesn't save more than your fee you will refund the fee...


      3. Knowledge
      This seems to me to be the best reason to go to an accountant and
      paying for knowledge is something I will do, but not until I have explored other avenues first such as posting a question on propertytalk...

      And so we are back to the beginning... Does anyone have any answers to the above questions?

      Cheers David
      New to property investing? See: Best PropertyTalk Threads for New and Old Investors And/Or:Propertytalk Wiki

      Comment


      • #4
        Hi david

        Fair enough. Good luck.
        "There's one way to find out if a man is honest-ask him. If he says 'yes,' you know he is a crook." Groucho Marx

        Comment


        • #5
          Re: Tax returns & ownership

          Originally posted by Monid
          1 Does it matter whose name is on the mortgage/ownership of the property? (I guess I should say the properties are simply in personal ownership)

          In particular since of our 4 properties two are very positive and two are so/so we would like to allocate the first two to my wife since she has a low taxable income and the second two to me because I have a higher income.

          Is this possible or since both our names are on everything do we have to split them 50/50?

          2. Suppose the answer to the first question is yes, can you change things in the future? ie if my wife gets a high paying job and I become a house husband can we then reverse who gets what for tax purposes?

          3. If through the magic of depreciation you made a loss greater than your income for the year, could this be carried over into the next year?
          If your names are both on the title you need to split the income/expenses according to the proportion on the title (if not specified, it's 50/50).

          To change things in the future you need to change the ownership proportions. The easiest way to do this is sell the properties into an LAQC and you can then buy/sell shares between you to change the balance. You should talk with a specialist in this area before doing this! Also be aware that if you sell the property into the LAQC you will have to worry about depreciation recovery.

          I believe personal tax losses can be carried forward to the next year (company and trust ones definitely can).

          Comment


          • #6
            Originally posted by Monid
            2. Money
            Now if I thought the accountant would save me at least their fee in taxes then sure I would use an accountant but I don't see them saving me much more money than I can myself, we are a fairly small scale operation at this stage. Actually if there are any accountants reading this that would be a gutsy advertising move, guareentee that if your customer doesn't save more than your fee you will refund the fee...
            So you are sure that you can do as good a job as your accountant in claiming all the allowances that you can up to a point where it is tax efficient rather than tax avoidance?

            I had a 1 hour meeting with my new accountant the other day, and am now due a $1,000 GST refund as a result.

            Don't under estimate the value of a good number cruncher.

            I, too, like to keep a close eye on things, but its the things that I don't know about that I'm happy to pay someone else who does to tell me.

            my 1.22 (after tax) cents!

            cube
            DFTBA

            Comment


            • #7
              Thank you Graemeh

              I was just going to post that I had found that answer to the question in Anita Bell's book "Your Investment Property" So 50/50 it is then... Probably not ideal for us but still livable and it reduces my wifes income below the student loan repayment fresh hold, saving us interest there.

              By the way especially if you are just getting your training wheels I would avoid Anita's book like the plague, while this is the NZ edition it is still clearly written by an Australian who is for the most part still thinking in terms of Australia. Thus some of the things she says could seriously misled you especially the insistence that every property must have a bug inspection prior to purchasing, likewise she claims that the bank's will take care of the valuation, not here as far as I am aware this is usually the purchasers responsibility.

              We are intending to move towards an LAQC in the future so I guess when I move into full time lecturing (cross my fingers...) will be the time to move, hopefully not too far away so that the claw back isn't too painful...

              Cube actually you are right there is a further reason to go to an accountant, to ensure that you are remaining within the letter (though not neccesarily the spirit) of the law. I was intending on taking a conservative approach and not claiming if I thought it might be disputable... But this would mean seeing an accountant is likely to save us money.

              Perhaps the best thing for me to do is to do our tax returns as best I know, then go to an accountant just for this year to check myself and pick up anything else I can...

              Cheers David
              New to property investing? See: Best PropertyTalk Threads for New and Old Investors And/Or:Propertytalk Wiki

              Comment


              • #8
                If you are planning on transfering to an LAQC, and the property is new last year, consider electing not to treat as depreciable property.

                You may lose the beneift of 19.5 cents today, but may have to pay at 33% when you transfer in to the LAQC (deprecaition recovery).

                And losses can be carried forward.

                And excess imputation credits are gossed up into losses at 21% giving very favourable results for those who can use it.

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