My wife and I are planning to purchase an IP. My salary is in the top tax bracket, my wife's salary isn't.
We have submitted the loan application few days ago. The loan will be under both our names.
The title will be registered under my name (99%) and my wife's name (1%).
My question is, Will I be getting more tax benefits if the loan was solely under my name (instead of having the loan on both our names)?
Yes…
Having the IP loan solely under your name will mean you can claim 100% of the interest payments from your income, whereas having it with your wife's might mean you can only claim a fraction of it based on your income, and the other fraction based on your wife's income. Whether that fraction is 99%/1% or 50%/50% I'm not sure, but my guess is the later.
May I ask why you want to place the IP loan under both your names? From what I've read and heard it's better to have personal assets under the lower income partner, and investment assets under the partner that is earning more income.
Hi Racmike,
Sounds like the property is negtaively geared (or you are using depreciation claims to improve the cashflow) – if this is the case you are better off with the ownership structure you have. It places both names on the title, maximises security and cashflow.
Increasing ownership to 100% makes stuff all difference in terms of your cashflow.
Thanks Derek.
Yes the property is negatively geared.
My mortgage broker advised me to put both our names in the loan application as he said that it would make the bank more comfortable with lending the money, He said "you can still claim all the deduction – it would make very little or no difference if the loan was solely under your name" – I just want to know if what he is saying is true or not.
Firstly, you shouldn't be taking legal or taxation advice from a mortgage broker. There are many other issues involved too.
Secondly, why waste your wife's borrowing capacity? If you put her on title for 1% for future loans she will be assessed as owing 100% of the debt, but only getting 1% of the income. BTW, you can have her off title and on the loan if you need her (if your income is not enough).
Thirdly, think ahead. There will come a time when the rent exceeds costs and a profit will be made. If it is in the name of the high income earner then more tax would be payable at this stage.
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
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