Property Investment mistakes - Getting ownership wrong

The way to have a great investment is not just to focus on the property itself but also to think about the other aspects that can make a significant different to your bottom line.

Let's look at an example of how two difference approaches for the same property achieved different results. A common mistake couples make when purchasing investment propertiy is to purchase in joint names rather than considering what will be the most tax-effective ownership split.

Lets' assume only one partner is working and earns $100,000 per annum. If the property is purchased in joint names then the income and deductions will be split equally

                                                            Partner 1                                 Partner 2

Income                                                  100,000                                     Nil

Rental income $20,000                            10,000                                     10,000

Deductions - $40,000                               20,000                                     20,000

Taxable income                                     90,000                                      -10,000

Tax saving                                              4,000  per annum                     Nil

If the property is purchased in Partner 1's name only then the rent and deductions will be as follows.

                                                            Partner 1                                 Partner 2

Income                                                  100,000                                    Nil

Rental income $20,000                             20,000                                               

Deductions - $40,000                               40,000                                               

Taxable income                                     80,000                                      Nil

Tax saving                                               8,000 per annum                    Nil

By getting the structure right up front our couple were able to improve their potential tax savings  by $4,000 per annum or $20,000 over the next 5 years.