Buying Assets in the Right Name
Assets should be held in the name which provides the best income tax result. This will also provide the greatest asset protection for you and your family. It is important to get this right at the time you are buying an asset because it can be costly (Stamp Duty; Capital Gains Tax) to unwind or correct later.
My Golden Rules for buying assets for tax benefit are as follows:
1. Income producing investments such as term deposits should be in the name of the lower income earner of the family.
2. Shares paying dividends should be in the name of the lower income earner. Unfranked dividends are those that the company has not paid tax on. Franked dividends have a tax credit on them – and this credit may be fully or partially refundable at tax time to the shareholder.
Capital Gains Tax on shares sold for a profit is also less if the shares are held by the lower income earner.
3. Investment rental properties that are negatively geared should normally be held in the name of the higher income earner of the family. Negative gearing means that the rent on the property is less than investment costs (rates, insurance and interest/gearing). That loss can be deducted against other income.
We generally do not recommend negatively geared investment properties in a Trust as the loss is preserved in the Trust – and is not distributable.
Whilst Capital Gains Tax applies on the sale of such assets, there are generous tax concessions to reduce the liability provided the asset is held more than twelve (12) months.
4. The Family Home. There is no income tax payable on any realised capital gain on the sale of your home provided it is owned in your personal name/s and provided you are not claiming tax deductions for a portion of your home as a place of business. Accordingly, we never suggest that the family home be owned by a Trust or a Company as the asset loses its taxfree status.
I suggest in most cases that the family home be held in joint personal names as Tenants in Common. If one party faces personal risk in their business or has other types of exposure – eg. they’ve given a personal guarantee – then the home should be in the name of the family member not exposed to that risk.
If you need to change Ownership*, speak to a trusted accountant and weigh up any cost/ advantages.
NOTE* : I suggest you get a quote about the Income Tax, Capital Gains Tax and Stamp Duty implications of any change from a good accountant and weigh up those costs with any advantages of the change. Sometimes it may work out better to ride things out rather than initiate a change. For instance, if you wanted to change the ownership of your current home between you and your spouse but you are planning to sell that home within three (3) years we would suggest you wait until you buy the next home rather than incur any Stamp Duty on a transfer.