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Re: Debt Recycling, home loan set up and investment ownership

Newbie

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Replies 4

My husband and I are looking to re-finance our home loan for a lower rate, but also to set up debt recycling. We currently have 70k in a share portfolio in his name only (lower income earner). We were thinking to sell all of this portfolio and put it against the mortgage then re-draw that back out and re-invest so the interest on the 70K is tax deductible. 

Should we start a whole new share portfolio in joint names considering the home loan will be joint?

Do you need a loan with split loan features or is an offset account dedicated to investments only (hoping we can get multiple offset accounts with the new mortgage) enough proof of seperating loan for income producing assets?

Any advice on setting this up successfuly will be appreciated.

Many Thanks!

1 ACCEPTED SOLUTION

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Most helpful response

Community Support

Replies 3

Hi @Simone7,

 

If you are wanting to sell off assets bear in mind this will trigger a Capital gains tax (CGT) event and this will need to be reported on your husband's tax return.

 

If thereafter you redraw against your home loan and use the money to produce assessable income then yes the interest portion can be claimed as a deductible expense. If some of it is used for private expenses you will need to apportion the loan. Any personal/private expenses are not claimable.

 

You may wish to seek financial advice in relation to the way you want to set up your share portfolio, we cannot offer information on this. 

 

All the best.

4 REPLIES 4

Most helpful response

Community Support

Replies 3

Hi @Simone7,

 

If you are wanting to sell off assets bear in mind this will trigger a Capital gains tax (CGT) event and this will need to be reported on your husband's tax return.

 

If thereafter you redraw against your home loan and use the money to produce assessable income then yes the interest portion can be claimed as a deductible expense. If some of it is used for private expenses you will need to apportion the loan. Any personal/private expenses are not claimable.

 

You may wish to seek financial advice in relation to the way you want to set up your share portfolio, we cannot offer information on this. 

 

All the best.

Newbie

Replies 2

Hi

Thanks for the reply. Yes, I am aware of the CGT on selling our current portfolio, but this will be minimal, compared to the tax offset advantage we will have once our investments are purchased through our investment loan. Was mainly seeking advice on how to set this up. I have booked in to see a tax accountant to help, but was hoping for some insight from this community. Many thanks.

 

Community Manager

Replies 1

Hi @Simone7 

 

We can't provide financial advise on how to set up your investments. Maybe other members of the community can help - @SM2304 @MCA_Accountants @macfanboy 

 

A good reminder- which I am sure you already know is that if you both want to report income or claim deductions the investments need to be in both names.

Devotee

Replies 0

Hi @Simone7 

 

The decision on what names to hold your investments in is a complex one and you need to consider many things like:

- short term tax savings

- long term tax implications

- estate planning

- risk minimisation / asset protection

 

I doubt anyone will give you a straight answer on a forum becaue of this (and it they do - in my opinion - it hasn't considered all the relevant factors and should be treated as such).

 

Split loans can become tricky, and moreso when you add offset accounts. My suggestion would be to get the bank to separate that $70k into a separate loan with no offset associated with it (associate any offset with your mortgage). If the bank can't, keep it as simple as you can.

 

Not mentioned so far is the possibility of Part 4A (anti-avoidance) applying. If you enter into an arrangement purely for the tax benefits, the ATO can undo it. If I understand your situation, my concern would be that you aren't really changing your investments, but you have created a tax deduction for interest that you don't currently have without altering much else. Changing the names should be enough to avoid this, but ultimately it's a subjective area.

 

I know this doesn't really give you an answer, but hopefully it helps a little. I would suggest going and seeing an accountant or financial advisor.