I have a client with an IP that was a former PPOR and title and loan (PI) and bank accounts in joint names. Husband on $75K, wife on 30K, no 221D submitted yet.
I have recommended they get specialist advice, but suggested:
1. They refinance into interest only loan in husbands name;
2. Open new bank account in husbands name only;
3. Channel all husband income into own bank account as well as property income;
4. Pay all expenses out of the husband bank account;
5. Claim all tax deductions for the -ve gearing from husband under “beneficial ownership” provisions;
6. Set up a redraw facility as a fall back if ATO audits and disallows.Any comments?
[happy3]Geoffrey Stroud
IP Consultant
OzInvest
P: 1800 800 775 M: 0406 402 855
E: [email protected]
W: http://www.ozinvest.com.auHello Geoffrey
What are the beneficial ownership provisions you mention?
I always thought deductibility of expenses must be in accordance with the percentage ownership. So if 50/50 husband and wife, then they can only claim 50/50.
There may be a way around this with salary sacrificing, see http://www.bantacs.com.au for more on this.You don’t give details of the existing loan of the property and also if they are renting now or bought another main residence.
eitherway, I would suggest a 100% offset account. If they have a new home, then the offset should be on the new home loan. If not, then the existing will do.
Since interest on money used for investment purposes can be claimed, then it may be an idea to look at borrowing for all property expenses such as rates, insurances etc. The money that would otherwise have been used to pay this can be diverted to the new home loan, or the offset account.
Terryw
Discover Home Loans
[email protected]
Send an email to get my newsletter.Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Without actual figures it is difficult to comment but i assume that the P & I loan has been paid down over the years hence the shift in consideration to interest only.
Certainly as adviser you wouldn’t recommend they redraw as this is clearly in breach of the ATO guidelines.
One consideration would be to sell the property into a Unit Trust for the current value and pay the additional stamp duty making the full 100% of the loan interest know fully dedcutable. Adiditional funds raised could be placed in an offset account linked to their current PPOR to reduce non tax deductible interest.
The other strategies you have outlined will not work.
Cheers
Richard Taylor
Residential & Commercial Finance Broker.
Licensed Financial Planner. Ph: 07 3720 1888
[email protected]
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