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Interest deductions

Discussion in 'Accounting & Tax' started by Drgonzo, 23rd Jun, 2016.

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  1. Drgonzo

    Drgonzo Well-Known Member

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    hi wife and I jointly own two ips

    It seems illogical but is it correct that although income and other expenses are apportioned according to ownership that interest may be fully deducted against one owners share ?

    It doesn't sound right?
     
  2. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    No - interest is apportioned to ownership as well.
     
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  3. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Why do you think everything is apportioned according to ownership other than interest?
     
  4. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Likely as one of them is paying the expense. Many taxpayers (incorrectly) consider that a expense is claimed by the person paying it.

    If such a rule existed half of most married couples deductions could be affected. Imagine if you bought work boots using a joint account ?? Or you wife paid for your tools on her credit card.

    Tax law doesnt necessarily define that a person who actual pays an expense claims a deduction. However the taxpayer must incur a cost and then the obligation must be discharged. That can be by someone else eg borrowed money which creates a new liability or by a spouse, parent even.

    This same rule can actually create a double dip deduction for SOME taxpayers. For example, a taxpayer who uses their car frequently for work (eg clients not the office) may claim the cents per KM method up to 5,000km per car. Andrew could drive his car for 5,000km and then he and his wife switch cars. He drives hers and she drives his. And they keep VERY diligent proof of this. So he can double dip the deduction. And if they both had deductible travel (eg field sales reps) they could both double dip.

    But Andrew cant borrow his mate's car and triple dip. Andrew hasnt incurred the costs of ownership and operating the car.
     
  5. Perthguy

    Perthguy Well-Known Member

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    If I buy a house with my investment partner 50/50 as tenants in common, I pay cash and he gets a loan for his half, I can't claim his interest expense.
     
  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    That may be the case:
    Tax Tip 58: Two on title One on loan. Who claims Interest? Tax Tip 58: Two on title One on loan. Who claims Interest?
     
  7. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Agree. There is a tax case (cant recall name etc) of someone who did this and then the investment partner ceased to pay their loan. The lender enforced the mortgage and the investor who paid cash had to make good the loan and interest arrears. They were unable to claim the interest paid to the bank as it did not relate to acquisition of their ownership interest. Its a good example of the risks of allowing your unencumered interest to be given as loan security for another persons borrowing.
     
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  8. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    The loan doesn't necessarily need to be secured against the jointly owned property. Both parties could have other properties they borrow against, using a LOC for example, and then use these borrowed funds. One could pay cash and the other use the LOC. So the joint property could be unencumbered.
     
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  9. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Yep...This case as I recall was about the interest on same property.