How to do tax return for property purchased under partner's name

I just bought an Ip under my partener's name this month. However, both of us are on the loan.

- Should my partner do the tax return for the entire property or can I do 50% of it?

- I did refinance on another IP previously. Can I use the borrowed money for the deposit of this new purchase and claim tax deduction in my own tax return?

Thanks

 

Sounds like you haven't purchased a property but your partner has.

If you don't own the property and there is no trust relationship then you cannot claim anything at all. If you have lent money to your partner they may be able to claim the interest.

 

Thanks, Terry. I have some investment properties under my name. However, to avoid land tax, I put the newly purchased property under my partner's name and am providing funds for the purchase. Some of the money is from refinancing a couple of other IPs I own. We have applied for the loan together. This property will settle after a week. We plan to get married and will apply for loans together in all future purchases.

What are your answers for my previous two questions?

Thanks for your help.

 

if the property is held in their name and the loan in both names then the partner will claim 100% of the interest expenses.

no need for a loan agreement. Where the title deed indicates sole ownership of a property, and the mortgage is held in joint names, the legal owner can claim the full amount of the interest paid. The fact that the other party to the mortgage may have paid some of the mortgage expenses is of no consequences for income tax purposes. The Tax Office treats the payment of the other party's share of the expenses as no more than a loan from the other party to the taxpayer (TR 93/32 at paragraph 49).

 

@terryw's answer stands.

The person who owns the property (your partner) declares the income on his tax return. He can claim any deductions HE pays.

As YOU did not use the borrowed funds to purchase properties in YOUR name, you cannot claim the interest, unless you entered into a formal legally documented arrangement to lend the money to your partner. Then you could claim the interest, but would declare the interest he paid you, which would probably cancel out each other. Your partner could then claim the interest he paid you.

In short, your partner can claim deductions on that particular property, you can't.

Sounds a bit messy.
Marg

 

I answered this above.

 

To avoid complication, can I just keep the money from refinance and use it for paying the interest of the loans of my other properties? I guess the interest of the refinance money will be tax deductible by doing it in this way.

 

It cannot be deductible for you. This would be capitalising interest so it complicates things even more

 

You could be the beneficial owner under a resulting trust.

You provided the funds and it seems you intended to be the sole beneficial owner, with your partner just the 'legal owner' with no beneficial interest.

If this is the case then 100% of all income and deductions relating to the property are yours

You need to seek legal advice on whether a trust arrangement exists, since using a spouse's name on the title may also imply that you intended to gift the money (presumption of advancement) as well.

Not simply a legal title apportionment where trusts exist.

Note also that trusts are an instrument of equity and may not be held to exist by a court if you do not have 'clean hands' such as schemes solely to evade state land tax.

If you want certainty then legal advice is essential.

 

Thanks, Terry. How can I spend the refinance money to get the tax benefits? Can you list a couple of ways?

 

Thanks, Rob. Due to the complication mentioned above, I am happy for my partner to do the tax of the property by herself. I am not intending to have a trust arrangement. I just want to find a way to get deduction on my tax bill by spending the borrowed money through refinance wisely.

 

No. If you borrow $ from your partner (the property is hers) then the USE of the new borrow needs to be kept distinct from the original borrowing, be formally documneted and agreed, be maintained on a arms length basis AND be used to produce new income to be deductible.

Refinancing isnt a automatic entitlement to a tax deduction. eg If you refinance and buy a new car it is non-deductible. You may be confusing loan security with the use of borrowed funds. The use of borrowed $ determines its tax situation

 

Buy shares.

Or an IP in your name.

Only two choices really. You must use it to buy an income producing asset in the same name as the borrowing.

Or you probably could formally lend the money to your partner. Draw up a legal agreement. Then you can claim the interest, but it will be cancelled out by the interest she pays you which you must declare. But at least then SHE can then claim the interest she pays you. As it stands, no one can.

But don't take my word for it, I am not an accountant.

Get professional advice.
Marg

 

Your first post stated that you just "bought a property under your spouse's name".

A resulting trust may occur where you merely provide the funds and someone else goes on the title, it is a trust arising as a result of law. As a beneficiary of a bare trust, all property income & deductions will be yours.

Better to on-lend the funds to your spouse. However, you will have interest income and your finance expenses may be deductible. Your spouse may then be the legal and beneficial owner and entitled to all property income and deductions, including the interest expense paid to you.

 

Apparent purchaser ?....Unless an express trust interest can be proven this may expose a very high tax risk (State and or Commonwealth). Rob - Can you suggest an adviser who can give personal advice on this ?

 

Sorry Paul, other than Terry I do not know any legal practitioners in public practice that would understand the income tax ramifications.

Perhaps the OP could find some evidence that the funds were in fact on-lent and there was always intended to be interest payable when things settled down. Even if no interest was initially charged.

e.g. FC of T v Total Holdings (Australia) Pty Ltd

 

Terry, to get tax deduction, can I use the refinance money to pay the council rates, insurance and maintenance of my existing properties? Does this have different effect from using the money to pay interest of these properties?

 

Thanks Paul. I understand that I need to use the refinance money on investment to get tax deduction. Terry told me that paying interest of my other properties will be capitalising interest and will be more complicated. I am still able to get non-refinance money to complete the transaction of this new purchase with my partner. I try to find out the best way to allow me to get tax deduction immediately. Any advice? Thanks

 

Possibly.

 

I reckon Part IVA could apply unless there is a compelling primary reason you plan to use borrowed funds that you plan to use it seems....so that an enhanced deduction occurs now and for future years ? That seems like a Part IVA scheme and until Commissioner tells YOU otherwise I would avoid it.