Reply: 1.2.2
From: Mike .
Hi George,
I'm in agreement with Sim's comments. Today, I made my own enquiries to the ATO. This is what happened:
Dialing 132861, as quoted in the Tax Pack, I reached General Enquiries. I explained the entire situation to the adviser, including the bit about 10% deposit secured by equity in your home. She searched her database for Rulings or legislation but couldn't find anything so transferred me to a CGT adviser. I repeated my story and, like the first person, she didn't think the equity thing nor the 2 names on the loan thing were relevant. So she transferred me to a Personal adviser and I repeated my story to him. Like the previous advisers he hadn't heard anything like the 2 stories you got from the ATO. In the end, he suggested that I apply for a Private Ruling.
Also, today I picked up the Rental Properties guide 2000-01. The wording regarding multiple interests in property hasn't changed from last year. It says:
"Joint tenants or tenants in common must divide the income and expenses in accordance with their legal interest in the property. If you don't know whether you hold your legal interest as a joint tenant or a tenant in common, read the title deed for the rental property."
Check out this link to the ATO:
http://www.ato.gov.au/content.asp?doc=/content/Individuals/9033.htm&page=8#H9_5
So, George, as you are the sole legal owner of the IP, you declare 100% of the rental income and expenses and you claim 100% of the deductions, including 100% of the interest since you didn't put down a cash deposit.
If you had put down a 10% cash deposit and the bank loaned you 100% of the purchase price, so that you effectively received your 10% back from the bank, then you would claim only 90% of the interest, since only 90% of the loan has gone to the vendor. That's a different scenario to yours, though.
I also agree with the others that the bank probably wanted both signatures to include your wife's income in the serviceability of the loan. If her income wasn't included you may not have qualified for the loan. Verify this with your lender or broker.
Do me a favour, next time you get advice from the ATO, ask them to quote the relevant Ruling number or legislation section so you can cross check it, either on the ATO website or a library which holds copies of the 1936 and 1997 Tax Acts.
Regards, Mike