Tax Tip 51: Two Spouses: One wants to Invest the other Doesn’t

Discussion in 'Accounting & Tax' started by Terry_w, 10th Oct, 2015.

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  1. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

    9th Jun, 2006
    Australia wide
    Two Spouses: One wants to Invest the other Doesn’t

    Sometimes one party to a relationship is much more keep to invest than the other party. The other party may even be against investing.

    The only solution for the investor spouse may be to go it alone. But this is not always easy as consent of the other spouse is needed to access equity.

    Money for deposits and stamp duty will be needed for property purchases. Ideally this should be borrowed money because if you use savings it will mean you are diverting your funds from paying down the non-deductible debt.

    Two ways of moving forward are

    1. Save up your own cash in a separate savings account, or

    2. Plead with the other spouse to let you set up a LOC/IO loan on the jointly owned property so you can access equity.

    The first one is not ideal as saving money will cost you more in interest and end up making you pay more tax.

    The second one may not be possible with some spouses and without their consent it will not be possible.

    Here is a possible solution to the dilemma:

    From the beginning set up the loans on the main residence as two separate splits. Have split A in the name of spouse A and split B in the name of Spouse B. Each will need to guarantee the other’s loan but overall it is not much more risk than having one combined loan. The extra risk is that either spouse could redraw money and blow it.

    But this risk is actually the advantage in doing this – as long as the funds are invested.

    Spouse A can pay down their split independently of Spouse B. Once it is paid down to a certain level Spouse A could then redraw the extra payments. Redrawing is new borrowings for tax purposes so the interest on this money should be deductible.

    Spouse A can then go out and use the borrowed funds as deposit on an investment property and buy the property in their name only. Spouse B will have nothing to do with this purchase and may not even know it has happened until you have told him (anecdotal evidence suggests Spouse B’s are mainly men).

    However redrawing from a loan like this will create a mixed purpose loan and this will cause problems with tax and will be difficult to rectify, especially without the consent of the other spouse.

    Tax Tip 19: Avoid Using Redraw on an Owner Occupied Loan

    So my suggestion is to set up a few splits from the beginning as I discussed in

    Tax Tip 13: Simple Loan Structuring Strategy

    If split one loan split could be paid off and then reborrowed without contaminating the other loan splits.

    This sort of set up would generally be available with any lender, however CBA specifically markets a product – the name of which escapes me now.

    Keywords: Loan Structuring, deductibility of interest.
    KateSydney, Nemo and legallyblonde like this.
  2. legallyblonde

    legallyblonde Well-Known Member

    23rd Jun, 2015
    Great tax tip Terry!
  3. Gockie

    Gockie Unicycle - get exhausted but never two tired Premium Member

    18th Jun, 2015
    Ta Terry. :)