Debt Recycling into Shares - Joint Ownership

I haven't seen this come up, but assuming there's a simple explanation:

If you own a PPOR 50-50 with your spouse. And debt recycle 100k to invest in shares.

Say your spouse is currently not working, to take advantage of this, you buy 100k income producing shares in their name, in their share trading account. Would only 50% of the 100k be deductible? Since the 100k isn't being used to produce YOU income, but your spouse.

Basically the question is, if the loan and title of the home are in joint ownership, would the share trading account also need to be a joint account, and any income be split between both people to make the entire 100k redraw be deductible?

 

Deductibility will depend on the ownership where spouses are jointly borrowing

Tax Tip 335: Spouses Jointly Borrowing and Deductibility of Interest Tax Tip 335: Spouses Jointly Borrowing and Deductibility of Interest

 

If in their name they must be a co-borrower. If that ia a loss then it may carry forward. Franking etc may be refundable. The issue about the borrowing. There can be one share owner if the borrowings are joint.

 

I see, seems quite straight forward then. To confirm my understand then: A&B are co-borrowers on a loan. Then split and debt recycle 100k and buy shares in B's name. B will deduct 100% of the interest on the 100k, whereas A would claim any deductions.

Edit: whereas A would'NT

 

A would NOT claim any deduction. B owns the shares. B used the borrowed funds.

 

Oops that's what I meant. Thanks Paul and Terry

 

On a slightly different note, would you actually buy income-producing shares for someone not working or in a lower tax bracket? For debt recycling. Isn't it the most beneficial if the income (and the deduction on interest) is for a person with a higher tax bracket? (higher tax bracket = higher deduction on interest).

If I'm missing something? Thanks!

 

It would depend on what the expected income, CGT and interest deduction numbers were. Whether there is a annual tax benefit from interest is to be considered. eg If Mary (Peters wife) has a taxable income of $0 then she can earn up to $20K+ tax free so those interest deductions arent really much value and so investing without borrowing makes greater sense. It may better suit Peter to have those deductions annually and then in three years he could end up with a CGT amount and after CGT discounts the tax rate is max 23.5%...

A disc trust with a related party on-loan may be the most optimal but comes with initial costs + annual costs. But that trust may accrue tax losses if it has no other income and just incurs interest and will only have taxable income when the CGT amount is realised.

 

It depends if you know the person or not.
Even if spouses it may not be beneficial to buy them in the name of the spouse. If you do there are estate planning and other legal implications.

 

Buying shares in the name of another person doesnt mean they own them. Who is liable for tax ?
This occurs with parents who think they can use kids names. The tax issue may remain with the parents. The beneficial ownership may remain with the parent rather than the child who is a merely legal custodian. (Ignoring they are a minor)

eg ATO says

Whoever rightfully owns and controls the shares declares the dividends and any net capital loss or gain from the sale of shares. You need to consider who:

• provides the money for the shares
• makes share decisions
• spends the dividend income.

If there are large amounts of money or a regular turnover, you might need to examine the ownership of the shares further, including finding more information to work out who should declare the dividends.