Edited version of private ruling

Authorisation Number: 1011605760439

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Ruling

Subject: Interest expenses

Are you entitled to a deduction for all of the interest expenses incurred on a joint loan that is taken out to purchase income-producing assets where they are held in your name only?

Yes.

This ruling applies for the following period:

Year ended 30 June 2010

The scheme commenced on:

1 July 2000

Relevant facts and circumstances

You and your spouse have a joint loan.

This loan is used solely for investment purposes.

The investment is with a financial planner under managed funds in your name only.

Your spouse is only on the loan documents as you did not earn enough money to get a loan in your own name.

This loan has not been used for any other purpose other than the investment.

The loan has had no private or other use by your wife.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1.

Income Tax Assessment Act 1997 Section 6-5.

Reasons for decision

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that assessable income includes income according to ordinary concepts. Examples of assessable income include interest and dividend income.

Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature or relate to the earning of exempt income.

Where funds advanced under an investment loan are used to purchase an income producing asset, interest that accrues on the principal sum is deductible under section 8-1 of the ITAA 1997. In the case of an investment in shares if there is a reasonable expectation of deriving dividend income, interest incurred on a loan to purchase shares for this purpose will satisfy section 8-1 of the ITAA 1997 and therefore is deductible.

Taxation Ruling TR 93/32 deals with rental properties and the division of net income or loss between co-owners. Although TR 93/32 looks at rental properties, the underlying principles can be applied to other income producing assets.

The ruling explains that the loss or income from a rental property must be shared according to the legal interest of the owners, except in those very limited circumstances where there is sufficient evidence to establish that the equitable interest is different from the legal title (paragraph 6). It goes on to explain at paragraph 41, that where the taxpayers are related, for example, husband and wife, the equitable right is presumed to be exactly the same as the legal title.

In applying the principles extracted from TR 93/32 you are able to use the funds from a joint investment account to purchase income producing assets under your name only.

You would be the sole owner of the income producing assets and therefore any income earned from them will be assessable to you under section 6-5 of the ITAA 1997. You would also be entitled to claim a 100% deduction under section 8-1 of the ITAA 1997 on the interest charged on the investment loan, despite the fact that the loan account is to be held jointly with your spouse.

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