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Using redraw to invest for spouse

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My Mrs and I have a joint investment property loan. We want to withdraw some money from our redraw and buy shares in her name. Would the interest on this withdrawn amount be tax deductible for her only (that’s what we want). Or will it be deducted from both our incomes as the loan is together?

My accountant has offered some strange advice which I don’t understand. Here it is below:

“In this case, you and your wife enter a loan agreement. Your wife borrows the money from you and pay interest to you. The interest is calculated by using the rate charged by your lender. You need to declare that amount of interest on your tax return.”

I suspect the reason she is saying that is either because she’s misunderstood what I’m trying to do or because when we set up the loan, we borrowed more than we needed and we used the excess to buy shares in my name and therefore I have a larger portion of the loan?

Any advice appreciated

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Most helpful response

ATO Community Support

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Hi @zainman,

 

What we look at is the use of the borrowings, if the money is used to produce assessable income then generally the interest associated to this is deductible. If the loan is in both names then the interest on the loan would be 50/50.

 

However, claiming the interest portion on her return will be relevant to the ownership of the asset/s. 

 

I'm not sure about what your Tax agent has offered. You are both liable for the loan repayments, you may look at how this was set up with the bank on your contract?

 

If you have further questions please post them here.

1 REPLY 1

Most helpful response

ATO Community Support

Replies 0

Hi @zainman,

 

What we look at is the use of the borrowings, if the money is used to produce assessable income then generally the interest associated to this is deductible. If the loan is in both names then the interest on the loan would be 50/50.

 

However, claiming the interest portion on her return will be relevant to the ownership of the asset/s. 

 

I'm not sure about what your Tax agent has offered. You are both liable for the loan repayments, you may look at how this was set up with the bank on your contract?

 

If you have further questions please post them here.