An Interest, tax deductible question.

gad · 02-02-2006, 06:48 PM

G'day

Just wondering, from a tax point of view, who is entitled to claim on the interest paid in the following situation:

1. Loan originally taken out by both husband & wife for IP.
2. Title of IP is in husbands name only. (So until now he has claimed).
3. IP is refinanced with another lender to 80% LVR interest only investment loan (loan still in both names & title still in husbands name only).
4. After paying out the original lender, the balance is used to buy
* additional * units in a managed fund in the * wife's * name.

I am unsure whether:
1. the husband would continue to claim on the interest paid
2. it would now be claimed against the wife's income
3. or would it need to be apportioned?

Your "opinion" is appreciated, thanks.

Sim · 02-02-2006, 07:43 PM

It is the purpose of the loan that determines its deductibility.

In this case, the balance of the loan is used to buy managed fund units in wife's name - hence that portion of the interest is only claimable by the wife.

ie. option 3 is correct - it needs to be apportioned.

gad · 03-02-2006, 06:58 AM

Thanks Sim.
Much appreciated.

Nigel Ward · 03-02-2006, 08:54 AM

Quote:

Originally Posted by gad

G'day

Just wondering, from a tax point of view, who is entitled to claim on the interest paid in the following situation:

1. Loan originally taken out by both husband & wife for IP.
2. Title of IP is in husbands name only. (So until now he has claimed).
3. IP is refinanced with another lender to 80% LVR interest only investment loan (loan still in both names & title still in husbands name only).
4. After paying out the original lender, the balance is used to buy
* additional * units in a managed fund in the * wife's * name.

I am unsure whether:
1. the husband would continue to claim on the interest paid
2. it would now be claimed against the wife's income
3. or would it need to be apportioned?

Your "opinion" is appreciated, thanks.

Perhaps another option going forward might be a written partnership agreement under which the wife does a substantial amount of the work in relation to IPs eg letting, book-keeping, arranging repairs etc etc. The ATO in their rental properties booklet seem to accept this kind of arrangement allows apportionment of income on terms set out in the partnership agmt.

Nick will have some thoughts on this.

N.

NickM · 07-02-2006, 08:03 AM

ATO ID 2002/363 (a brief extract is available on my website under newsletters and downloads)
is the appropriate reference for a joint loan and interest deductibility. It doesnt really matter whose name is on the loan it is the purpose as Sim said that is important.

as for NIgel's comments if it was only 1 property you may struggle to justify a bookeeping expense. I dont think a partnership agreement is suitable as the IP is only in 1 name.

a job description would be necessary in order to justify paying your spouse.

NIckM