Whose name should be on the loan? deductable?

I have a property with and is under my wifes name. We are taking out a loan with ING, with 2 splits. My broker said that the loans can only be taken out as joint names as my wifes income is not sufficient to cover repayments. Thats all fine.

I only have one key question. One of the split we plan to use to purchase shares under my wifes name. Will this affect her ability to claim interest deductions for the shares given that the loans have been taken out jointly (e.g. 50/50).

Any ideas? Or anything I should be doing differently? Appreciate your help!
 
Deductibility of a loan is determined by the purpose, not the names on the loan. In this instance the purpose of the loan is to purchase a property owned by your wife. It stands to reason that destructibility would be assigned to her.
 
The issue of whose name the loan should be in is one which seems irrelevant of first glance. It is the USE of the borrowed funds which give rise to the deductions by those who hold the title in the same proportions. So if two persons A & B are TIC 50/50 and A borrows $100K and B borrows $200K the total interest deduction is split 50/50 as that is the title. This issue comes up where one owner may pay the rates etc...The ATO view is that the deduction is shared and cannot be claimed by a single owner.

However at times the ATO wont accept this approach !! The most common example is loan interest. If the arrangement is a scheme intended to derive a extra tax benefit and A & B are owners but only A borrows and all risks etc are with A its arguable that a negative gearing benefit for B may be sham arrangement - Part IVA applies. The ATO can deny some (but usually deny all) of the interest deductions - Or even all of the deductions.

Note I said scheme - Basically anything the parties do can be a scheme. The most important element is the issue of an extra tax benefit. The ATO will argue a scheme exists if B is on title for no apparent reason beyond deriving a additional tax benefit than if A was the sole owner. That can be hard to prove / disprove. In the end if the ATO hold their position the taxpayer faces a costly dispute.

This view raises itself from time to time and one of the best places to read about it is within TD 2009/17. This ruling refers to the instances where borrowed moneys are used by one party and benefits others. Yes its about a hybrid trust but the principles are clearly described. Its the BENEFITS OTHERS issue.

Personal tax advice should always be obtained whenever the ownership share and the loan proportions are not exactly the same and maintained this way. This is an area many accountants and tax agents with basic tax skills can fall foul and can provide poor advice to clients. The problems can be detected years and years later. If a Part IVA arrangement is suspected the ATO aren't usually limited to a 2 year amendment period either. So a small issue can balloon into a substantial claim for penalties, interest and denied deductions for years.

This issue is one the ATO are well aware of and so far no adverse ruling has been issued. Its a very high risk area for those who have poorly structured loans. I forsee a day when a ruling is issued and the stuff will hit the fan. That said it doesn't mean the problem doesn't exist. Part IVA is a weapon often used and humble investors can be a target.
 
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