Tax Tip 81: Deductibility of interest property in name A but B paying loan

Tax Tip: Deductibility of interest property in name A but B paying loan

What happens if a person is paying someone else’s loan? For example A and B own a property 50/50 but B goes on maternity leave and has no income.

In this situation even if A is paying the loan in full the deductions will still be split according to ownership.

 

Wow number 81 Terry, good karmas coming your way...

Simon should give you your own sub forum section, Hell channel 7 should employ you to go up against Ross Greenwood

 

The ATO doesn't care who pays it.

 

A should probably lend B the make so as to allow B to make the repayments on the loan. Carefully structured this could increase deductions for B which could benefit later on.

It could also help B argue A has less of a beneficial interest in their share of the property

 

That may capitalise the interest.

Its important to remember that the loan obligation is joint and it doesnt matter who or how its paid. One cant borrow money for their "half" and capitalise it. There can be limited exceptions to the general non-deductible rule for capitalised interest. Maternity leave could be a example, job loss etc. Such an arrangement must be carefully considered and temporary without a scheme arrangement to benefit. Planning to do this just because of maternity leave isnt in itself acceptable. This shouldnt be attempted without advice and even a ato private ruling.

 

It certainly would result in interest capitalising.
Tax Tip 24: Capitalising Interest and Non working spouses Tax Tip 24: Capitalising Interest and Non working spouses