5 things you need to know when you buy a property with another person

negatively geared investment property. The ownership percentage may be different for positively geared properties. Property investors should speak to their accountant or finacial advisor to get advice relevant to their particular situation.

3. Getting it wrong can be costly

If you don’t get tax advice and later realise you need to change the ownership percentage between co-owners on title, it can be a costly mistake to fix.

Transfer duty (aka stamp duty) is usually charged on the transfer of any interest in the property between co-owners. For example, if investor co-owners purchased the property as tenants in common in equal shares and later realised they should have purchased in unequal shares of 99% and 1%, then they will need to transfer 49% of the property to the other co-owner and transfer duty will be charged and calculated based on 49% of the value of the property.

4. Foreign co-owners

Foreign buyers usually need to apply for Foreign Investment Review Board (FIRB) approval to buy property in Australia and in NSW, VIC, QLD and WA, they will also usually be charged foreign surcharge duty (up to 8% extra).

If foreign buyers are intending to purchase property with their Australian spouse, then they may be able to structure their purchase to obtain a more favourable outcome.

Foreign persons do not need to apply for FIRB approval (and would save at least $5700 in FIRB application fees) if they purchase a residential property as a joint tenant with a spouse who is an Australian or New Zealand citizen or who has permanent residency. This exemption does not apply if they purchase the property as a tenant in common. Even as joint tenants, however, foreign surcharge duty would be payable on the foreign person’s interest in the property (i.e. 50%).

If a foreign person purchased a property as a tenant in common in equal or unequal shares then they would need to apply for FIRB approval (which would only usually be approved for new residential properties) but would only pay the foreign surcharge duty on their share of the property (which could be as little as 1%).

Another alternative to reduce the acquisition costs is for the non-foreign person to be the only owner on the property title and for an interest in the property to be transferred at a later date to the foreign person once they became a permanent resident. Such a transfer may also be exempt for transfer duty in most states if the transfer was for a principal place of residence and the transfer results in the co-owner spouses holding the property in equal shares.

5. Co-owners agreement

Co-owners should consider and document what they want to happen in the event of a dispute about the property; for example if one of the co-owners wants to sell, and the other doesn’t. There are some laws dealing with this type of situation but it can be costly to appoint a statutory trustee for sale. Co-owners should consider entering into a co-owners agreement which is a legal document setting out the rights and obligations of each person (other than in the event of a marriage or de facto relationship breakdown for which a binding financial agreement would be required) . This should be signed at the start of the ownership whilst the co-owners are friends and not left until there is a dispute which will be too late.