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Joint Names - Equity Loan

Discussion in 'Accounting & Tax' started by Sean Reynolds, 16th Sep, 2015.

  1. Sean Reynolds

    Sean Reynolds Member

    Joined:
    1st Jul, 2015
    Posts:
    16
    Location:
    Melbourne
    Hi all,

    Hoping someone might be able to clarify the scenario below:

    Mr. X and Mrs. Y own a PPOR together (joint ownership) and wish to draw equity on this property to fund the 20% deposit for an IP. Mrs. Y is likely to have her income reduced after having a child several years from now.

    The investment property will be cash-flow positive after tax, and is expected to be positively geared after a few years. For this reason the IP is purchased in Mrs. Y's name.

    Will interest incurred on the equity loan against the PPOR for the deposit be deducted against both incomes, or just Mrs. Y?

    Thanks
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    9,045
    Location:
    Sydney
    Just Y. The other person X has no income associated with the borrowings.
     
    Sean Reynolds likes this.
  3. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,400
    Location:
    Sydney
    The deduction is based upon the OWNERSHIP of the newly acquired property and the ownership of the LOAN SECURITY is ignored. Its very important that the new loan and the old loan are blended...This is a example of a blended loan problem. Best practice is to ensure the old loan and the new loan are separate accounts.

    In the example given if Mrs Y acquired the new property she would likely have:
    - 100% of rental income and 100% of rental deductions for the new property
    - Deduction for the deposit loan secured against home and also
    - deduction for interest on say the other 80% loan secured by new IP.

    Mr X is just a co-borrower. Terry has some good articles on this co-borrower issue and why it may be good / bad.