Tenants in Common structure

Question from Jeremy updated on 21st December 2010:

We have purchased a rental unit and signed the S&P "and/or Nominee"
My solicitor suggests we purchase it as "tenants in common" to make it easier to transfer into a trust when/if we set one up in the future . His advice was to seek advice about the tax implications of that.
It is likely that the income from the rent will exceed the expenses including interest.
I currently earn a salary and my wife does not earn anything, so I was hoping that she could do the work and the profit from the unit could be all attributed to her income, thus overall we pay less tax. Can we do that if we own the unit as "tenants in common"?

Our expert Mark Withers responded:

From a tax perspective a tenants in common arrangement describes a partnership where two people are carrying on business in common with a view to profit. Generally this will mean both parties are on the property title and will be liable for the mortgage.

In these circumstances IRD would typically expect profit to be split evenly. having said that, the partnership could still recognise a cost for your wife's work and effort before determining a split of any remaining profit. It would need to be realistic though. If the property were in a trust the trustess would have the option to distribute the profit to your wife assuming she is a beneficiary. This may provide some extra flexibility along with asset protection. 

Mark Withers and his team at Withers Tsang & Co specialise in advising on property related transactions, valuation and restructure services and tax planning.


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