Income Tax/Deductible Interest Calculation

Evening,

So i have been running numbers but can't seem to get it correct.

Person 1 income: $140k
Person 2 income: $0

$265k PPOR loan under both names. No other debts.

Option 1: Person 1 redraws $15k from paid down split from PPOR then invest in an LIC.
Person 1 now has $15k worth of deductible debt, but share yields chewed up by high tax rate?

Option 2: Person 2 redraws $15k from paid down split from PPOR then invest in an LIC. $0 income tax therefore does not really benefit from $15k deductible debt?

With the PPOR loan (50/50 ownership) would it just be better for person 2 to use cash?
Intention would be to reinvest dividends back into LIC's while also further splitting and investing ($15K) further PPOR portions. (or cash?)

Ainsley

 

If person 2 had cash it might be better to pay down the loan and borrow. Reduce nondeductible debt. As you suggest there may be no immediate tax difference but over time there will be and don't forget about cgt.

It might even be better if person 2 doesn't claim the interest against income but waits till shares are sold

 

All cash would come from person 1.
So person 2 not claiming the interest deduction, are you saying that doing so would 'bank' the interest deductions until the time of sale? (the intent would be to re-invest in LIC's)

 

Using cash would mean diverting the repayment of the nondeductible loan

 

Why would person 2 buy an income producing investment if expected returns after interest was positive.

A 15k investment would produce negligible changes in any event.

 

I agree, but the plan is to reinvest the dividends and maybe ~20k each year at this stage.