Planning opportunity: The otherwise deductible rule and joint loans 24.11.2005
The Tax Office has recently confirmed the existence of a planning opportunity for couples who own rental properties jointly, especially where one member of the couple has a much higher income than the other member.  
 
A recent Interpretative Decision states that, where an employer provides a low interest loan jointly to an employee and their spouse, and the loan is used to jointly acquire an income producing property, the loan is not subject to any fringe benefits tax (FBT) due to the application of the 'otherwise deductible rule'. 
 
This is because the loan is deemed to be provided to the employee alone, and, since the interest payments on the loan would be 'otherwise deductible' to the employee, no FBT is payable on the loan. 
 
This means that the employee and the spouse can share the income of the property jointly, but the employee can effectively claim all of the deductions. 
 
Editor: The implications of this ID should not just be limited to where the employee obtains the loan from the employer, but also where an employee salary packages a loan obtained from a third patty lender. Please contact this office if you would like to discuss how you can utilise this planning opportunity.

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