When purchasing an investment property as a couple, many assume the purchase should be in joint names. However, this decision can have significant tax implications, both in the short and long term. Choosing the right ownership structure can impact tax deductions, capital gains tax, and land tax, making it essential to understand the key factors before making a decision.
Tax Deductions on Interest and Expenses
Owning an investment property comes with tax benefits, including deductions on interest payments, property maintenance, and other expenses. If the property is owned jointly, these tax deductions are shared based on ownership percentage.
Since most investment properties are negatively geared in the early years (where expenses exceed rental income), owning the property in the name of the higher income earner can provide greater tax savings.
Example:
- Partner A earns $80,000 per year (30% marginal tax rate).
- Partner B earns $150,000 per year (37% marginal tax rate).
- If tax deductions are claimed by Partner B, they are at 37%, resulting in a 7% greater tax saving than if claimed by Partner A.
However, if the property is positively geared (earning more than it costs to maintain), owning it in the name of the lower-income earner may be more tax-efficient, as any surplus rental income would be taxed at a lower marginal rate.
Capital Gains Tax (CGT) Considerations
When selling the property, Capital Gains Tax (CGT) applies to any profits made. If the property is owned by the lower-income earner, the CGT liability may be lower, as it is taxed at their marginal tax rate.
For joint ownership, the capital gain is split between both individuals and taxed at their respective marginal rates. Additionally, if the property has been held for more than a year, a 50% CGT discount may apply, reducing the taxable portion of the gain.
Land Tax Considerations
If you own multiple properties, land tax can become a significant expense. Land tax thresholds vary depending on whether the property is owned by an individual, trust, or company, and different structures are assessed separately.
For couples who already own property, it’s important to consider how additional properties will be assessed for land tax to determine if there are any potential tax savings.
How Northhaven Can Help
Deciding whose name to buy an investment property in depends on various factors, including:
✅ Your current income and tax position
✅ Whether the property is negatively or positively geared
✅ Your long-term investment goals
✅ The impact on Capital Gains Tax and land tax
At Northhaven Financial Management, we help clients understand the tax and financial implications of different ownership structures and provide tailored recommendations to ensure investments are set up correctly from day one.
📞 Contact us today for an obligation-free consultation and make the right decision for your property investment strategy.