alternative to st george portfolio loan

hi guys,

my wife and i are in the market for a house and i was considering getting the st george portfolio loan. the main reason i'm interested in this loan is that we have an active portfolio of shares and once all our funds go into the mortgage i still want access to quick funds to purchase shares. what is also of interest to me is the sub-accounts can be setup under either my wife's or my own name. this is good for us, as most likely in the future sometime i will be the only bread winner and for tax reasons shares i may want to purchase shares under my wife's name or my own name depending on the circumstances.

so having read a number of threads which outline the problems with LOC type loans, i'm now keen on getting a loan with an offset a/c with a redraw facility. the only thing is that the redraw a/c will be under both my wife's and my own name. does anyone know of product out there that will let me redraw under a certain name? or is there another way i can achieve the same result without getting the LOC loan?

thanks,
kefa
 
Kefa,

To my understanding it doesn't matter whether the loans,subaccounts, Locs or whatever are in both names. Its whose name the investment is purchased in that counts ie: whose name is on the title or who owns the shares etc...

MJK :D
 
hi mjk,

thanks for replying.

so you're saying that the loan can be under joint names, and if we use the funds to purchase shares under the name of my wife then my wife can claim 100% of the interest?

kefa
 
you're spot on MJK, thanks for the tip.

this is a link to the tax ruling:
ATO ID 2002/363

ATO ID 2002/363

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FOI status: may be released
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Status of this decision: Decision Current


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ATO Interpretative Decision

CAUTION: This record of an ATO decision may not include a complete statement of all facts in summarising the application of the relevant provision of the law to complex circumstances. If you rely on this decision and your circumstances are materially the same as those described, and the decision is subsequently found to be incorrect, penalties will not be attracted on the missing tax. However, interest could be payable in any event depending on the circumstances of the case. If the relevant provisions, being those in force at the date of decision, have been amended or rewritten, it will be necessary to have regard to the amended or rewritten law. You may wish to obtain further advice from the ATO or from a professional adviser.

Income Tax
Rental Property - proportion of deductions claimable

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Issue


Is the taxpayer is entitled to claim the full amount of the interest paid on a mortgage for a rental property under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) when listed on the title deed as the sole owner, but the mortgage is held in joint names with the taxpayer's spouse?

Decision


Yes. The title deed determines the percentage of the claim for loan interest expenses in most cases. As the taxpayer is entered on to the title deed as the sole owner, they are entitled to claim the full amount the loan interest expense under section 8-1 of the ITAA 1997.

Facts


The taxpayer is shown on the title deeds of a property as the sole owner. The property is being used as a rental property.

The mortgage for the property is held jointly with the taxpayer's spouse.

Reasons for Decision


Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income, except where the outgoings are of a capital, private or domestic nature.

Interest paid on a mortgage over a rental property is considered an allowable deduction for the purposes of section 8-1 of the ITAA 1997.

Taxation Ruling TR 93/32 explains that the loss or income from a rental property must be shared according to the legal interest of the owners, except in those very limited circumstances where there is sufficient evidence to establish that the equitable interest is different from the legal title (paragraph 6). It goes on to explain at paragraph 41, that where taxpayers are related, for example, husband and wife, the equitable right is presumed to be exactly the same as the legal title.

A person's legal interest in a property is determined by the legal title to that property under the land law legislation in the State or Territory in which the property is situated. The legal owner of the property is recorded on the title deeds for the property issued under that legislation.

The taxpayer is shown on the title deeds to the rental property as the sole owner. Thus, the loss or income from the rental property must be shown solely by the taxpayer.

Where the title deed indicates sole ownership of a property, and the mortgage is held in joint names, the legal owner can claim the full amount of the interest paid. The fact that the other party to the mortgage may have paid some of the mortgage expenses is of no consequences for income tax purposes. The ATO treats the payment of the other party's share of the expenses as no more than a loan from the other party to the taxpayer (Taxation Ruling TR 93/32 paragraph 49).

The taxpayer's spouse is a party to the mortgage over the taxpayer's property. The ATO regards any mortgage payments made by the taxpayer's spouse as a loan to the taxpayer.

The taxpayer is the sole owner of the rental property for income tax purposes and therefore the mortgage interest payments are available in full to the taxpayer under section 8-1 of the ITAA 1997.

Date of decision: 26 February 2002



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Legislative References:
Income Tax Assessment Act 1997
Section 8-1

Related Public Rulings (including Determinations)
TR 93/32

Keywords
Rental property
Interest expenses

Date of publication: 28 March 2002

ISSN: 1445-2782
 
Irrespective of the position outlined in the ATO's interpretative decision, the flexibility and administration benefits flowing from a segregation of the financing of different activities and acquisitions (eg. home purchase, shares, IP, other acquiistions) would be considerable. It also avoids the possibility of the ATO being able to argue an alternative detrimental allocation of loan principal reductions across different accounts resulting from either regular loan repayments or the proceeds resulting from the sale of assets financed by loans drawn from the sub-accounts.

Given these issues, my view is that some form of sub-account financing, whether it be St George's Portfolio loan or one of the similar products offered by other banks, would be appropriate to your circumstances.
 
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