As seen in Woopi News March 2023
Often clients come to us at tax time with; we purchased an investment property this year and we need to include the rent in our tax returns. Sometimes, people are disappointed with the result, as they believed the property was going to offset more tax and they would receive a bigger refund. Sometimes this is due to not understanding what upfront and ongoing costs are deductible. Other times it has to do with which name the property has been purchased in.
When you buy as joint tenants, all owners have an equal share of ownership. It’s important to understand that this equal share will also apply when including the net rental income or loss in your tax return and also to the capital gain on the investment when sold. This is particularly important where one owner is a high income earner and the other is a low income earner as this could make a big difference if the owners have different marginal tax rates.
When you buy as tenants in common, you can have different ownership percentages. The net rental income or loss is then applied using these percentages when preparing the owner’s tax returns. However, it is important to consider if you are planning to hold the property short term adjusting the ownership percentage to achieve a better tax outcome on the rental income or loss might not be favourable when dealing with a net capital gain upon the sale of the property.
It is important to get advice specific to your circumstances from a qualified professional who will ensure you have considered all the variables. It’s best not to rely on what you see or read on social media, often these people are leaving out important information and referring to foreign tax laws that are not applicable here in Australia.