Right structure - Loan

S

Success

Situation as follows -

Wife not working + substantial CG losses carried over.
Husband working - high income and no CG losses.

Strategy
Looking to purchase IP to initially hold and then renovate/ sell for profit within 5 years. Interested in tapping into CG losses from wife.

Looking to purchase under 50/50 ownership. This provides husband with tax benefits mid term and then benefits when selling as wife will be able to offset CG gain with carried forward losses.

How to (need help)
So I can obtain financing relatively easy. We have substantial equity in our PPOR to redraw.

Was thinking of using 50% from redraw and then borrowing 50% for purchase of IP. Now the existing PPOR loan is under joint names where would be re-drawing equity from. Can my wife claim this as 100% her funds ?

Any help/guidance is appreciated on the above.
 
Success said:
How to (need help)
So I can obtain financing relatively easy. We have substantial equity in our PPOR to redraw.

Was thinking of using 50% from redraw and then borrowing 50% for purchase of IP. Now the existing PPOR loan is under joint names where would be re-drawing equity from. Can my wife claim this as 100% her funds ?

Any help/guidance is appreciated on the above.
Click to expand...

In part, the best way to go will depend on what your future goals are. If you've got a lot of equity and want to do more investing, it would be ill advised to fund 50% from your existing home equity, when you could preserve this for later. Consider using only enough of your PPOR equity to cover 20% plus purchase costs, then borrow the remaining 80% directly against the new IP. The numbers are still the same, but it's more heavily loaded against the IP.

Also, make sure you don't simply redraw from an existing loan against your PPOR (assuming that loan is a non deductable loan). You'd be better off to set up a separate equity loan to be used specifically for investment purposes. If you redraw from a non-deductable loan you've contaminated the purpose of that loan and will likely miss out on some tax deductions.

If you own the property 50/50 with your partner, then all the tax deductions and capital gains will be split between you on a 50/50 basis. It doesn't matter how creative you get, deductability is assigned based on the purpose of the money and the ownership of the asset, not by the asset the loans are secured by.
 
Success said:
Situation as follows -

Wife not working + substantial CG losses carried over.
Husband working - high income and no CG losses.

Strategy
Looking to purchase IP to initially hold and then renovate/ sell for profit within 5 years. Interested in tapping into CG losses from wife.

Looking to purchase under 50/50 ownership. This provides husband with tax benefits mid term and then benefits when selling as wife will be able to offset CG gain with carried forward losses.

How to (need help)
So I can obtain financing relatively easy. We have substantial equity in our PPOR to redraw.

Was thinking of using 50% from redraw and then borrowing 50% for purchase of IP. Now the existing PPOR loan is under joint names where would be re-drawing equity from. Can my wife claim this as 100% her funds ?

Any help/guidance is appreciated on the above.
Click to expand...

This is really a tax structuring question.

With spouses deductibility depends on name of title.
If you borrow from redraw you will be creating a mixed loan - you should split this.

If you buy jointly then anyinterest will be 50/50, including from redraw.
 
PT_Bear said:
It doesn't matter how creative you get, deductability is assigned based on the purpose of the money and the ownership of the asset, not by the asset the loans are secured by.
Click to expand...

Wanted to clarify this point above as I was confused which asset/property we are referring to. For example, if his situation was as follows

Property #1 = PPOR - Line of Credit (Account exclusively only used for investment purposes) | Account Holder/Home Ownership: Husband & Wife

Property #2 - IP | Ownership: solely in husband's name

If the intention is to use the PPOR Line of Credit account (account and PPOR home held under ownership of both husband and wife) to fund the deposit/purchase of a new investment property in which ownership name is only in the husband's name. Is this ok?

Because the Purpose of the Money from LOC = "Investment"
Ownership of the Assst (assuming you were referring to the new purchase) = "Investment"
 
Since the LOC on property 1 is held in joint names, but the funds will be used for a property in the husbands name, the my understanding is that the deductibility should be assigned to the husbands income. The ownership of the loan does muddy this a little so you should consult your accountant and keep the use of the funds in the LOC consistent.
 
PT_Bear said:
Since the LOC on property 1 is held in joint names, but the funds will be used for a property in the husbands name, the my understanding is that the deductibility should be assigned to the husbands income. The ownership of the loan does muddy this a little so you should consult your accountant and keep the use of the funds in the LOC consistent.
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Pete, any authority for this?

I am about to lodge a PBR application for a client on this topic.
 
Terry the argument is that the deductibility is determined by the purpose test. If the money is used for an investment in one parties name, the to some degree this defines the purpose, but as I mentioned, it becomes somewhat hazy when there's different names on the loan. In part it can be argued that the purpose could be defined by who actually benefits, which the non owning party might (someone not working tends to benefit from their partners income). This is why it would be best to seek specific advice from an accountant. In many cases regardless of the accountants opinion, it can be worthwhile getting an ATO ruling (accountants aren't always right either).

Personally I think our tax system needs some serious thought in this area. Scrap family part A benefits and assess tax as a couple rather than two individuals. It'd be much easier, cheaper to administer and would stop the whole, "Buy in the higher income earners name for the tax benefits."
 
PT_Bear said:
Personally I think our tax system needs some serious thought in this area. Scrap family part A benefits and assess tax as a couple rather than two individuals. It'd be much easier, cheaper to administer and would stop the whole, "Buy in the higher income earners name for the tax benefits."
Click to expand...

Totally agree. Would be a much fairer system and would eliminate the need for a lot of complex structures.
 
It is based on the fact that receipt of joint income (joint tenants or tenants in common of an IP) constitutes a tax law partnership.

However, not being a common law partnership the income and expenses cannot be varied by agreement.

Merely being joint debtors says nothing about the income derived.
 
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