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Tax deductibility of interest - joint loan, single asset owner

Discussion in 'Accounting, Tax & Legal' started by gonz_7, 12th Aug, 2009.

  1. gonz_7

    gonz_7 Member

    Joined:
    5th Mar, 2009
    Posts:
    8
    Location:
    Canberra, ACT
    Hi

    This is not a new subject but I have looked back through the forum archives and could not find a situation exactly like mine. I also note there has been a little bit of confusion on this subject in the past.

    My wife and I are taking out an LOC to utilise some of the equity in our PPOR. It will be a seperate loan and account to our existing loan on the PPOR.

    While the LOC will be in both our names, we intend to buy shares in my wife's name as she is in a lower tax bracket.

    Am I correct in saying that all income and interest deductions should be reported against her name? In other words, it's not who borrows the money that matters but who owns the assets.

    Thanks and sorry to rehash old ground.

    Cheers

    Andrew
     
  2. Rob G.

    Rob G. Well-Known Member

    Joined:
    6th Jun, 2007
    Posts:
    717
    Location:
    Melbourne, VIC
    Generally ... all income & deductions belong to your wife if it is just held in her name.

    Cheers,

    Rob
     
  3. gonz_7

    gonz_7 Member

    Joined:
    5th Mar, 2009
    Posts:
    8
    Location:
    Canberra, ACT
    Thanks Rob. You say "generally ...". Does that mean there are some grey areas?
     
  4. Rob G.

    Rob G. Well-Known Member

    Joined:
    6th Jun, 2007
    Posts:
    717
    Location:
    Melbourne, VIC
    Situations such as holding part of the ownership in trust for the husband.

    Cheers,

    Rob
     
  5. Superman

    Superman Well-Known Member

    Joined:
    6th Nov, 2007
    Posts:
    343
    Location:
    Gold Coast, QLD
    Deductibility of interest is generally determined by how the funds are employed (i.e. purpose). There must be a 'nexus' or connection between the expense incurred and the income earned. Interest on a LOC and dividend income from shares is a good example of this rule.

    There can sometimes be trouble confirming the deductibility where the fund originally used for (deductible) investment purposes are then taken and used for (non-deductible) personal purposes.

    Borrowing against ye old home equity (mate) to buy some shares is a pretty common long term strategy to build some wealth and obtain some juicy tax deductions along the way.

    The funny thing is that so many people just go out and do it with no real education, expertise or plan. I like the idea of actually having a plan that takes into consideration all of my goals, objectives and personal factors and then gives me a valuable strategy to help me achieve those objectives.

    Yeah - it might cost a few thousand to have it done properly - but if I have a few hundred thousand of blue chip ASX shares it is only one decent dividend to cover the cost. Obviously a financial planner will want to invest my money into managed funds etc - but they are just the tools they use. Other direct investments can be used to obtain the same results - so you can get the best of both worlds - a good strategy with some flexibility and personal control.