Can we claim any expenses in the 12 months prior to settlement?

Question from Jenny updated on 13th July 2009:

We bought a rental property in my partner's name at the request of the vendor. We settled 12 months later in my name at my bank's request. We borrowed 50% each from our respective banks. My partner has his loan for the rental secured over our own home. Our home is mortgage free. 2 questions. Are we able to claim any expenses we had in the 12 months prior to settlement. Namely interest on the deposit, even though we did not collect any rent in this time. Next question. We have both been claiming the expenses, some repairs and some interest, against the rental income and wages and salaries. As the house is currently in my name only but my partner took out his loan for this property is he able to claim his portion of expenses. Many Thanks for your help in clarifying this for us.

Our expert Mark Withers responded:

Hi Jenny, Quite a confusing setup here. I can only assume that you both consider the property to be jointly held despite it being in your name only. I'd see if I could get the title altered to reflect your partners interest ASAP.

However, you could legally document the arrangement to confirm your partners interest perhaps with a martimonial property agreement or even a bear trust document which indicates you are holding his share in trust for him.

The fact that you are each both responsible for your own mortgages means the arrangement is a joint venture rather than a true partnership. The difference being that you will each claim the interest on your respective mortgages and split the joint property holding costs.

The fact that your own home has been mortgaged is of no concequence to the deductibility. It is the use that the money has been put to that determines the deductibility. I believe your arguments for claiming costs prior to settlement will be somewhat tenuous as there is a very weak link between the costs and deriving income until the rent is flowing.

Mark Withers and his team at Withers Tsang & Co specialise in advising on property related transactions, valuation and restructure services and tax planning.



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