Buying a property – Tenants in Common v Joint Tenants

When two or more people are buying a property it is important to identify which ownership structure will be used. Will you be a tenant in common or a joint tenant?

I am a Joint Tenant. What does that mean?

If you are a joint tenant then you and the other owners will have an equal interest in the property. Joint tenancy creates a right of survivorship whereby in the event that a joint tenant dies; the surviving owner will take full ownership over the property. It also means your part of the property cannot be sold or given way without the agreement of all owners.

I am a Tenant in Common. What does that mean?

If you are a tenant in common then you and the other owners will have a stipulated ownership percentage; for example one person may have 25% ownership and the other person may have 75%. This ownership structure is often used when unrelated parties (i.e. friends, business partners) have pooled their funds together to purchase a property, but can also be used by married couples. In the event of a party’s death, their estate will continue to own the percentage of the property. This ownership structure is regularly used when there are unrelated parties or to take advantage of different ownership percentages for tax purposes.

E.g. A couple own a rental property which results in a net loss with one spouse earning considerably more than the other. For a greater tax benefit, it may be beneficial if the higher earning spouse claims more of the rental loss. Therefore, having a tenants in common ownership structure would be ideal so as to allocate a larger percentage of property ownership to the higher earning spouse in order to claim more of the loss. Under a joint tenant structure, the couple would share the net rental loss equally.

To change tenancy, we recommend receiving legal advice.

Pro Tip:
To remember the difference I use the saying – tenants in common – the only thing they have in common is the property so percentage of ownership must be stated (not necessarily true but an easy way to remember the difference).

Author: Allan Edmunds
Email: allan@faj.com.au

/by

Super Concessional Contribution Caps

It is very important to not exceed your concessional contribution caps in your super fund.

Concessional contributions represent pre-tax contributions to your super fund. These include your employer mandated contribution, salary sacrifice contributions and any member contribution where you are claiming a tax deduction for it.

The contributions are recorded when they are received and not the period they relate to.

Contributions exceeding the cap are subjected to excess contributions tax. This penalty tax is imposed on the individual and is calculated using marginal tax rates. Other interest charges and tax offsets will apply.

Pro Tips

Be careful of the timing when your employer pays the contribution. Last years contribution paid in July will count towards this years cap.

Know your cap limits! There have been changes with the recent budget, so you may be able to contribute more than you think.

Author: Heather Cox
Email: heather@faj.com.au

/by

Division 293 Notice – What is that?

Have you recently received a Division 293 Notice from the ATO?

You may have received one of these notices recently. Sounds technical but what is it?

It’s basically a money grab from the Australian Government.

Where an individual earns more than $250,000 in a year then they are charged an additional 15% tax on their concessional (read as pretax) super contributions. Concessional contributions include contributions by your employer, member contributions where you claim a tax deduction and salary sacrifice.

Concessional contributions are already taxed at 15% so the additional 15% brings the total tax to 30% on super contribution.

Is it worth it?

If you’re subject to this tax then you’re probably paying 47.0% tax so there is still a saving of 17.0%. Still worth it but less exciting (well for an accountant)..

How to Pay?

You can pay the bill using your own funds or the super funds. If you want to use your super to pay the bill then you need to complete the release authority which should be attached to your notice of assessment.

Pro Tips

Income for Div 293 purposes is not just taxable income. The ATO make adjustments such as adding back rental losses and including fringe benefits (amongst other things).

Using a trust?

Potentially you could stream your income to certain family members to avoid the additional tax.

State higher level office holder or Commonwealth Judge?

You’re in luck, there are some exemptions for yourselves.

Here’s a link to some further information from the ATO.

Author: Brigette Liddelow
Email: brigette@faj.com.au

/by

Blackhole expenditure, are you missing out?

Blackhole expenditure is capital expenditure that is not otherwise deductible and that relates to a business carried on for a taxable purpose. It is deductible over five years at the rate of 20%, provided the deduction is not denied by some other provision.

The blackhole deduction relates to outlay incurred when carrying a business, examples include:
1) discharging obligations such as licenses or leases,
2) commencing a business (such as the cost of feasibility studies and setting up the business entity)
3) business restructuring
4) defending against a takeover
5) the costs of ceasing business

Before deciding to utilise the blackhole expenditure deduction you should go through a number of steps.

Step 1) was the expenditure incurred on or after 30 June 2005?

Step 2) does the expenditure attract or is it denied a deduction anywhere else in the tax law?

Step 3) was the expenditure incurred for one or more of the following?
a) for your business
b) for a business that used to be carried on, such as capital expenses incurred in order to cease the business
c) for a business proposed to be carried on, such as the costs of feasibility studies, market research or setting up the business entity
d) as a shareholder, beneficiary or partner to liquidate or deregister a company or to wind up a trust or partnership (and the company, trust or partnership has carried on a business).

Step 4) Does the business satisfies both the following conditions?
a) the business was, or is proposed to be, carried on for a taxable purpose, and
b) the expenditure is in connection with your deriving assessable income from the business and the business that was carried on or is proposed to be carried on.

If you satisfy the following conditions you may be eligible to take advantage of the blackhole expenditure deduction and you should consult your accountant or get in touch with one of the friendly accountants at Francis A Jones.

Author: Adrian Wardlaw
Author Email: adrian@faj.com.au

/by