When purchasing a property, choosing the correct ownership structure is crucial. The two most common types of co-ownership in Australia are joint tenancy and tenants in common. The choice affects your rights as an owner, inheritance implications, and taxation responsibilities.
Difference Between Joint Tenants and Tenants in Common
The key distinction between joint tenancy and tenants in common lies in ownership structure and what happens when an owner passes away.
Joint Tenancy
- Each owner has an equal interest in the property, regardless of contributions.
- Includes right of survivorship – if one owner dies, their share automatically transfers to the surviving owner(s), overriding any will.
- Ideal for married couples or close family members who want seamless inheritance.
- Cannot be sold or transferred separately without converting ownership.
Tenants in Common
- Co-owners can hold unequal shares (e.g., one owner may have a 70% share, another 30%).
- No right of survivorship – each owner can leave their share to anyone in their will.
- More flexibility for investment properties or business partnerships.
- Each share can be sold or transferred separately.
Which Option is Best for You?
Choosing between joint tenants and tenants in common depends on your long-term goals. If you’re investing with a partner or family member and want independent control, tenants in common is preferable. If inheritance planning and simplicity are priorities, joint tenancy is more suitable.
Yield Calculation in Property Investment
For property investors, understanding yield calculation is essential to assess profitability. Property yield determines how much income you can generate from your investment in relation to its cost.
Types of Property Yield
1. Gross Rental Yield
A simple measure of rental income relative to the property’s value.
Formula:
Example:
- Property Price: $500,000
- Annual Rent: $25,000
- Gross Yield = (25,000 / 500,000) × 100 = 5%
2. Net Rental Yield
Takes expenses into account, providing a clearer profitability picture.
Formula:
Example:
- Annual Rent: $25,000
- Annual Expenses (maintenance, council rates, insurance, etc.): $5,000
- Property Value: $500,000
- Net Yield = ((25,000 – 5,000) / 500,000) × 100 = 4%
A high net rental yield indicates a profitable investment, while a low yield may suggest high costs or undervaluation.
CGT Property: Understanding Capital Gains Tax on Property
Capital Gains Tax (CGT) applies when you sell an investment property at a profit. The tax is based on the difference between your purchase price (cost base) and sale price.
How CGT is Calculated
Formula:
If you own the property for more than 12 months, you may qualify for the 50% CGT discount.
Example:
- Purchase Price: $400,000
- Sale Price: $600,000
- Capital Gain: $200,000
- CGT Discount (50% for individuals): $100,000 taxable capital gain
- If taxed at 37%, CGT payable = $37,000
CGT Exemptions and Reductions
- Main Residence Exemption: If the property is your primary home, you may not have to pay CGT.
- 6-Year Rule: If you rent out your home for up to six years, it may still be exempt from CGT.
- Depreciation Benefits: Claiming depreciation can reduce the effective capital gain when selling.
Frequently Asked Questions (FAQs)
1. Can I change from joint tenants to tenants in common?
Yes, but all co-owners must agree, and a legal process called severance of joint tenancy is required.
2. How does CGT apply if I inherit a property?
Inherited properties are subject to CGT only if sold. If the deceased owner used the property as their main residence, there might be exemptions.
3. What is a good rental yield for investment properties?
A gross yield of 5% or more is generally considered good. However, location and expenses significantly impact net yield.
4. Can I avoid CGT on investment properties?
Yes, by using strategies like the main residence exemption, depreciation deductions, or offsetting losses.
5. How does stamp duty differ from CGT?
Stamp duty is paid when purchasing a property, while CGT applies upon selling an investment property.
Choosing between joint tenants vs tenants in common, understanding yield calculation, and managing CGT property can significantly impact your financial outcomes in property investment. Nationwide Conveyancing offers expert advice and seamless property transaction services to ensure you make informed decisions.
For expert assistance with property ownership structures, taxation, and conveyancing services, contact Nationwide Conveyancing today!
This is general advice only.