Redrawing from a joint loan

This is actually more of a tax question...
If a mortgage is in 2 names (with wife) and I redraw to buy investment in my own name, would I be able to claim a deduction for the whole interest?

Example:
Property investment loan is in 2 names Anna and Bob.
The loan is interest only and has $100K available to redraw.
Bob decides to buy another property in his own name using the $100K as a deposit and paying the balance from a new loan secured by the new property (both in Bob's name).

Would Bob be able to claim full interest on the redrawn amount of $100K, or half of it is Anna's (who is in a lower tax bracket)?
 
This is actually more of a tax question...
If a mortgage is in 2 names (with wife) and I redraw to buy investment in my own name, would I be able to claim a deduction for the whole interest?

Example:
Property investment loan is in 2 names Anna and Bob.
The loan is interest only and has $100K available to redraw.
Bob decides to buy another property in his own name using the $100K as a deposit and paying the balance from a new loan secured by the new property (both in Bob's name).

Would Bob be able to claim full interest on the redrawn amount of $100K, or half of it is Anna's (who is in a lower tax bracket)?

yes my understanding is that it is the name on the asset not the loan that matters, so if your took that redraw and used it as deposit to buy a property in your name then it should be 100% tax deductible as of course should the loan against the new property
 
I believe so also as the big fella said. I ran this past my accountant not long back and he was happy enough with it.
Rather than assume we're both correct a quick call to your accountant will cover off on things.


Regards
Steve
 
Firstly i would be telling Anna and Bob NOT to touch the redraw as the interest wont be deductible anyway. Cancel the advance payments and take out a separate investment loan on the PPOR.

If the current lender insists the cleanest way is for the 20% deposit and costs to be secured against the PPOR in joint names and in turn jointly onlend the funds at the same rate and terms to bob individually.

As BigT has mentioned the name on the Title is the important issue however some lenders will like both names on the 20% that is secured against the PPOR.
 
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This is actually more of a tax question...
If a mortgage is in 2 names (with wife) and I redraw to buy investment in my own name, would I be able to claim a deduction for the whole interest?

Example:
Property investment loan is in 2 names Anna and Bob.
The loan is interest only and has $100K available to redraw.
Bob decides to buy another property in his own name using the $100K as a deposit and paying the balance from a new loan secured by the new property (both in Bob's name).

Would Bob be able to claim full interest on the redrawn amount of $100K, or half of it is Anna's (who is in a lower tax bracket)?

I'd say not....Sure the interest on that redrawn amount would be deductible given that the purpose of the loan is to purchase an income producing asset. However because the loan is in joint names I'd suggest that Bob can only claim 50% of the interest as a tax deduction given that he is not legally bound by the other 50%, unless there is a separate loan agreement in place between Bob and Anna for the other 50% to release Anna from her loan obligation. While I am a CPA, I'm not holding myself out as a specialist in this area of accounting, however I look forward to see what others have to say.
 
Hmm, doesn't seem like we reached a consensus...
Refinancing is unfortunately not an option.
I tend to think that the right way (as suggested) would be for Anna and Bob to sign a loan agrrement for $50000. So Bob would claim interest on $50000 taken from the redraw and also interest on $50000 borrowed from Anna. Anna in turn will state interest received from Bob as income and interest on $100000 paid to the bank as an expense. Correct?
 
ALthough you say refinancing is not an option ...

It would be best to get a separate loan account/split set up secured by the same property and have the available "redraw" put into this account. Then use this for investment purposes. Speak to your bank or your broker about whether this is possible.

Regards,

Jason
 
Hey Jason,

Redraw or a separate loan is irrelevant. The question is if the loan is in 2 names but the investment is in only one name, who can claim interest expense on their tax return?

Cheers,
 
Just think of it like this.

A+B are borrowing money and are on-lending to B.

A+B pay $X in interest for borrowing, but receive $X from B in income from the interest B pays A+B.

Net result is A+B's interest income is nil (interest out = interest in).
B's interest is $X
If B borrowed the money to invest then the interest would normally be deductible.

Therefore B should be able to claim the full amount of interest.
 
Hey Jason,

Redraw or a separate loan is irrelevant. The question is if the loan is in 2 names but the investment is in only one name, who can claim interest expense on their tax return?

Cheers,

Lotana,

My understanding is that the name on the title of the investment determines who can claim the interest.

I was simply pointing out that doing it with a redraw would make part of the loan deductable and part not - a bit of an accounting mess.

Regards,

Jason
 
By using a redraw from a private purpose loan to invest, you contaminate the deductible with the non-deductible debt. Every time you make a loan repayment, part will be paying of the deductible, and some will be paying off the non-deductible.

This will be an accounting nightmare.

Why not formally reduce the loan facility by the redraw amount, then take out a completely separate LOC for investment purposes.
Marg
 
Understand. But in my original question there was no undeductible interest. We have an investment loan and the whole interest is deductible to both A and B.

"Example: Property investment loan is in 2 names Anna and Bob."

B wants to redraw and invest in his own name claiming income and interest on redrawn amount in his own name. From the answers I understand that this is perfectly fine and no on-lending agreement is required. Correct?
 
Understand. But in my original question there was no undeductible interest. We have an investment loan and the whole interest is deductible to both A and B.

"Example: Property investment loan is in 2 names Anna and Bob."

B wants to redraw and invest in his own name claiming income and interest on redrawn amount in his own name. From the answers I understand that this is perfectly fine and no on-lending agreement is required. Correct?

I think some people have mis-interpreted the original use of the loan. Given it's already fully deductible, it will obviously remain so as you're redrawing for a deductible purpose.

The tricky part is determining how much of this interest on the original loan is deductible against which person.

I've occasionally wondered this myself. The simple solution would be to split the existing loan. Use one part of the split for combined investing and the other part for single investing. In most cases, this should cost you between nothing a few hundred dollars to set this up (depends on the existing loan you've got).
 
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