You are allowed to claim 100% of the interest incurred on the loan used to purchase the investment property, even though the loan is in joint names with your spouse. The fact that the loan is in both names does not prevent you from claiming the full interest as a rental property expense.

As a general rule, rental income and expenses should be reported in the tax return of the legal owner of the property—that is, the person whose name is on the property’s registered title. According to Taxation Ruling TR 93/32, rental property income and expenses are normally split between the owners based on their legal interest in the property. While the outcome can differ if equitable interests in the property are different from the legal interests, the ATO generally assumes that legal and equitable interests are the same when the parties are related, such as between spouses.

Although clear public guidance on this specific scenario is limited, there have been private rulings where the ATO allowed one spouse to claim the full deduction for interest expenses, even when the loan was in joint names. This was typically permitted because the borrowed funds were used solely to acquire an income-producing asset held by that spouse. However, it’s important to note that private rulings issued to other taxpayers cannot be relied upon as a precedent for your situation.

In summary, you should be able to claim 100% of the loan interest on your rental property, as you are the sole legal owner, and the loan was used entirely to purchase the income-producing investment property.

Reference – https://community.ato.gov.au/s/question/a0J9s0000001DwwEAE/p00029929