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Loan name(s) vs Property name(s) = messy at tax time?

Discussion in 'Accounting & Tax' started by KayTea, 24th May, 2016.

  1. KayTea

    KayTea Well-Known Member

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    Hi all.

    Due to a change in circumstances, my loan structure has changed, and I'm wondering how this may/will come into play at tax time.

    Currently - The property is my name only, and up until now, the associated loan has always been in my name only, too. It has been my PPoR for the last few years.

    But now an Equity Release loan has been taken out against this property in order to buy a new PPoR, which is mine and hubby's name (so the loan documentation went in both names, too - I couldn't get the whole lot on my own). The

    Moving forward - in a few months time, we will move into the new PPoR, and the one we are in now will become an IP. Property = my name only; Loan = was in my name only, but due to the release being for the new, jointly-owned property, it seems to now be held in both names.

    What happens at tax time?…….. Who claims the interest paid, income etc - me, or is it split (and if so, how)? Any insight would be great. Thanks.
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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  3. KayTea

    KayTea Well-Known Member

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    You've nailed it again, @Terry_w. Your knowledge never fails to amaze me!
     
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  4. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    The name/s on loans is not a matter that affects deductions. Legal title is usually the basis. So nothing changes.

    Just make sure the "new borrowing" interest is not claimed against the former home when it becomes an IP. The purpose for that loan was to buy a new PPOR (and not that property) so that equity release is a non-deductible loan. Ditto borrowing costs for the new loan relate to that equity release and are not deductible.

    Always look at loans on the basis of what the $ was used for. Not the loan security used to borrow.
     
  5. KayTea

    KayTea Well-Known Member

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    Hi Paul. Can I please check that I have this correct…….

    I already have a $220K loan on my (current) PPoR. I have just borrowed an additional $116K using an 'equity loan' against this place, in order to buy a new PPoR. So, when I move out of here in a few months time, I will owe a total of $316K on the property, which will then become an IP. If I understand this situation correctly, these should be kept as two separate loans - I can then claim the interest on the $220K loan only, but not the $116K.

    Should these two borrowed amounts be kept as separate accounts/loans? I am getting 'mixed messages' from the bank's loan documents - on one line it says "we are pleased to confirm that an additional loan to your existing loan has been approved". However, further down the letter it says "Additional loan amount = $116,000 ; Approved loan amount = $336,000", which makes it sound as though it is one, total loan.
     
  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yes. You should make sure those two loans are separate and not joined by increasi g the existing loan as you will have a mixed purpose loan.
     
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