IP Loan/Name

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From: Stephen Thomas


Have bought our first IP, putting the property in my name, as it will be 'linked' to my salary alone. Can I get confirmation that the loans arranged for the IP can be in joint name (husband & wife), being more preferable to the bank, yet all interest tax deductible against my salary alone. I know Jan mentions this on P.163 of her new book, but I would like to know, in reality, the ATO accepts this.
 
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Reply: 1
From: Rolf Latham


Hiya

Tax deductability is determined by TITLE, whereas a loan can have more than one borrower or guarantor with no implication to the tax man.

Check with your tax advisor to confirm.

Ta

Rolf

Rolf
 
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Reply: 1.1
From: Stephen Thomas


Rolf, thank you!

Cheers,
Stephen
 
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Reply: 1.1.1
From: Richard Hunt


Stephen,

Often lenders will only approve loans where both the intended sole owner and their spouse are co-applicants on the loan. An example is where jointly owned property, such as PPOR, is used as security for the loan.

Understandably, as the sole title holder, any rental income derived from the property will be included in your assessable income.

The deductibility of the interest on the loan depends on who incurs the interest. The substance of your joint loan is in "reality" a loan in which your spouse is merely acting as a nominee for you in order to satisfy the requirements of the lender. As you are in effect the sole beneficial recipient of the full amount of the loan funds, the tax law recognises you as the person incurring the interest.

To quote an ATO private ruling on this matter, "...such an arrangement is in substance that of a sole borrower and a guarantor in spite of its legal form as a joint loan."

Solicitors acting for the purchaser will often evidence this relationship between spouses by drafting a statutory declaration signed by them. The stat dec however is not critical to the treatment of interest.

Good luck!


Regards
Richard
 
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Reply: 1.1.1.1
From: Glen Wilson


Hi Stephen, I have just gone through my old copies of Property Investor and their are a couple of ways you can structure you IP. I have done mine with my wife as tenants in common. That way, both our names are on the title, in our application, both our incomes are taken into consideration, however, come tax time, you have to decide what percentage is who's. I have put 99% mine and 1% hers. Better for tax purposes. However, if you plan to sell, then obviously CGT is mainly calculated on yours and not hers. This approach was actually recommended to me by my lender, and after reading that post in the mag, confirmed it for me. Remember though, take it up with your accountant.

cheers :)

Glen
 
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