Join Australia's most dynamic and respected property investment community

Tax Tip 24: Capitalising Interest and Non working spouses

Discussion in 'Accounting & Tax' started by Terry_w, 21st Aug, 2015.

  1. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    9,045
    Location:
    Sydney
    Capitalising Interest and Non working spouses


    I am a big advocate of couples not jointly buying property together as there are a heap of strategies that can be used.


    One strategy may be to borrow to pay the interest of an investment property while the owner is not working. This may be when the children are born/young for example.


    Where a couple jointly own an investment property the opportunity will be lost as the other spouse will be left to foot all the interest. But where one person is owner and they have no other income then in may (and I say MAY) be ok to borrow to pay the interest.


    This will mean that funds that would have been diverted from paying down the PPOR loan can be used to pay off the non deductible debt faster. It will also mean that the owner of the IP will have higher deductions - which won’t help when they are not working but any losses can be carried forward and be offset by future income when it is incurred.


    Also when the non working spouse does return to work they will have a higher loan balance which will mean further ongoing deductions.


    You will probably need to see your lawyer or tax agent to get a private ruling to do something like this.
     
  2. bonanzawealth

    bonanzawealth Well-Known Member

    Joined:
    23rd Jun, 2015
    Posts:
    58
    Location:
    Sydney NSW
    @Terry_w, this sounds like a grey area which I understand you put MAY in capital letter.

    I don't fully understand this bit though:
    Could you please give another Borat example?

    In regards to paying IP interest by borrowing, would there be any income test from ATO for how much you can borrow to pay interest? The reason I'm asking is because If her maternity pay is enough to cover half of the interest, I would imagine then she can borrow half. But of course rather than getting confuse down the track, probably it's better to just borrow the full interest amount.
     
  3. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    9,045
    Location:
    Sydney
    Yes it s a grey area. But not for the ATO to tell someone how to spend their money. So he the wage is not enough to pay for living expenses it may be justifiable in borrowing to pay interest.

    This may free up the cashflow of the other spouse who won't have to divert funds from the PPOR loan to the IP.