What is Co-ownership and joint ownership and how can this help me?
Generally, when a couple purchase an investment property, it makes sense for the highest earner, and therefore usually the highest tax payer, to ‘own’ a larger percentage of the investment. This is because the tax relief (the money back from the taxman) will be more if the person is paying more tax. For example, a couple buying their first investment property currently are purchasing their own home on a 50/50 basis. There is no problem with this and the structure is probably the most common. However, the wife earns $110,000 per year and the husband earns $80,000 per year. A new investment property they are about to purchase will have a total negative gearing loss of say $16,000 in the first year. If the new property is owned 50/50 like the home, then both have $8000 each on tax relief. However, the husband will have his deduction calculated at his marginal rate of 32% tax while the wife will have her deduction calculated at 39%. The wife will receive more back because she is paying more tax so it would make sense for the wife maybe to be a co-owner with maybe 90% or more and the husband to be a co-owner with 10% or less. In this case they would not be joint owners but classed as ‘tenants in common”.
“Joint tenancy” and “Tenants in common” can be used between unrelated people buying a single investment property. Co-ownership and joint ownership means that financial resources can be pooled with friends and/or family to help invest in a property. However, this strategy carries more risk if one of the co-investors became bankrupt or suffered other financial hardship. Purchasing in this way with friends or relatives has other drawbacks but buyers should ensure they access good legal advice to create a contract that outlines each applicant’s commitment and percentage of ownership.
