All Topics / Help Needed! / IP Interest

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  • Profile photo of hkrhkr
    Member
    @hkr
    Join Date: 2005
    Post Count: 10
    July 24, 2005 - 4:59 am

    Hi,
    Just wanted to know what the forumites think of this situation:

    1- I actually took a loan of 50K from my wife to pay down my IP loan of 170K. The reason was that she was getting 5% form the bank as interest on her deposits whereas i was paying 6.57% on my interest on the IP.

    2- So we decided that she could lend me the money and i will in return pay her 6% interest, which is win-win situation for both of us.

    3- As it turned out, we had pull that money out for some other expense after just two months and my IP loan reverted back to the original amount of 170K.

    4- My question here is that does this effect my Tax Deductible status of my IP Loan. Will ATO see the 50K being the repayment of my loan and its subsequent withdrawal as for personal expense purposes.

    I am just bit apprehensive as the lender in this case was my spouse….

    Anybody having a bit more knowledge on this????

    Thanks.

    Profile photo of Robbie BRobbie B
    Member
    @robbie-b
    Join Date: 2004
    Post Count: 2,493
    July 24, 2005 - 5:06 am

    If you paid it into the loan instead of an offset account or had no formal contract with your spouse, I would say you just lost a lot of deductibility.

    TMA

    http://www.email4money.info
    Investor Links
    First Home Buyer Website

    Profile photo of hkrhkr
    Member
    @hkr
    Join Date: 2005
    Post Count: 10
    July 24, 2005 - 5:11 am

    Thanks for your quick reply TMA…

    Yes it was paid directly into the loan account but how do you define a formal agreement???

    I did pay interest to her and she has paid tax on that interest(showing it as interest earned). We have maintained proper entries of the same.

    Will thsi suffice?

    Profile photo of hkrhkr
    Member
    @hkr
    Join Date: 2005
    Post Count: 10
    July 24, 2005 - 11:42 pm

    Just wondering that some other forumites with such vast experience and knowledge may also like to suggest on this…

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213
    July 25, 2005 - 2:22 am

    Would your loan contract with your wife be enforceable in a court? Possibly it would, even if it was not written. if so, tehn you may be ok.

    I would myself treat it as a loan. One loan repaid with another, should be OK – but you never know how the ATO will treat it if audited.

    Terryw
    Discover Home Loans
    North Sydney
    [email protected]

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

Viewing 5 posts - 1 through 5 (of 5 total)

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