As far as i was aware the ATO will consider the names on the title with regards to negative gearing rather than the loan setup.
For example right now we have a loan in both names and title reflecting the same. Based on the title we claim 50/50 on the rental income and expenses. We are looking at refinancing this loan and the mortgage broker is suggesting that when we refinance it will just be in husbands name (im not working) and this will change the negative gearing tax treatment to be 100% tax claim on this property by him.
This is the first ive heard of this unless there has been a recent ruling?
Is your broker qualified to give tax advice? Ask him to back up his advice in writing and see what he says.
You will also find it very hard to finance a property in the name of one person if both are on title. The person not on title would have to guarantee the loan.
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
Terry, no they are not but they say their boss who is also a qualified (maybe not practicing though) accountant has advised this!
They have suggested that i go guarantee on the loan.
It is not a simple matter of merely refinancing.
The Title would need to be changed and this would involve a Transfer in ownership.
Depending on whether the property is a PPOR (to be rented out) or indeed an IP could trigger both Stamp Duty & CGT implications and these would need to be factored into the equasion to see whether it is viable.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Hi
My understanding is that the title deed determines the percentage of claimable deductions. ATO ID 2002/363 & TR 93/23 states;
"that the loss or income from a rental property must be shared according to the legal interest of the owners, except in those very limited circumstances where there is sufficient evidence to establish that the equitable interest is different from the legal title".On guaranteeing a loan in your husbands name…..I doubt that there is a lender out there that will entertain this as all will usually require you to be a co-borrower rather than a guarantor.
Mike is correct. The broker (and the person giving him the advice is wrong).
Refer them to http://www.ato.gov.au/rba/content.asp?doc=/RBA/Content/89363.htm
“Legal interest is determined by the legal title to the property. Where an investment asset is held in the name of one person only and the loan used to purchase the investment asset is held in joint names, only the legal owner can claim the full amount of the interest paid. In these circumstances we accept that the other person has on-lent his/her half of the funds to the legal owner and the legal owner is ultimately liable for and has incurred the entire interest expense. This is the case even if this arrangement is not formalised in a written loan agreement between the two parties.”
Ask them in writing to explain why their opinion differs from that of the ATO.
Thank you all for pointing me to the ato links. I thought as much!
The other point i noted is that when our accountant did my husband's 2010 tax return he didn't include a property we have in my name only (title) with loans in joint names. Which is how we had been doing our tax before as well.
Simple reason he didnt include the figures in your husbands Tax return is as the guys have all said the Title is in your sole name.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
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