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Mortgage or title determines tax liability?

Discussion in 'Accounting & Tax' started by James Bond, 30th Jun, 2015.

  1. James Bond

    James Bond Well-Known Member

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    Hi, if I have a property titled in my name only, but the mortgage on the property is in joint names, is the tax liability mine or joint?

    Thanks

    JB
     
  2. D.T.

    D.T. Adelaide Property Manager Business Member

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    Name(s) on title determines who declares what portion of rental income and claims what portion of related expenses.
     
  3. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    Yours Mr Bond....but I'm not an accountant.

    Cheers

    Jamie
     
  4. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    I believe your accountant will tell you it's what the money was used for, not necessarily how it was borrowed, that determines the deductibility. I think it's called the purpose test.

    If you're the sole owner of the investment property, and the money was borrowed to purchase that property, it tends to suggest the tax implications of that borrowed money would be against the owner of the property.

    There are exceptions to this, so you do need to discuss it with your accountant.
     
  5. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Unless there is a trust relationship or a partnership it would be the name on title that would claim all interest (on loans associated with the property purchase) for loans in joint names of spouses. If more than 1 name then in accordance with legal ownership interest.
     
  6. James Bond

    James Bond Well-Known Member

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    Excellent. You have been most kind.

    JB
     
  7. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    This question comes up a bit. Sometime people ask if one of the owners pays some specific expenses - Who claims the deduction ?? Answer is it doesn't matter who pays it. Its based on ownership.

    Its why the old FBT "scheme" to swing deductions to the high income earner was amended years back.. Before then you could run a FBT sal sac scheme and salary sacrifice loan interest so one taxpayer had neg gearing and other was positive....The ATO killed it with a ruling that subjects 50% of the loan interest paid that way to FBT. Ouch. Ah the good old days.

    The title ownership determines ALL deductions except if you operate a property BUSINESS. And that's not easy to do I will warn you. An example is a couple with say 25 properties generating all their income and they live off it. Not all neg geared .... Some owned by him, some hers, some different % etc...They may form a partnership and then share ALL income and costs 50/50 rather than the ownership on title.....Something I would consider that needs careful tax advice before doing.....And a private ruling so the ATO don't penalise.