Private ruling: Rental property interest
Published: August 2012
Ruling period: Year ended 30 June 2013 | Year ended 30 June 2014 | Year ended 30 June 2015 | Year ended 30 June 2016
Date scheme commenced: 1 July 2011

Ruling: Q1: Are you entitled to a deduction for rental property interest? | A1: Yes.



Reasons for decision: Summary: Section 8-1 of the Income Tax Assessment Act 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. Taxation Ruling TR 95/25 provides that the deductibility of interest on borrowed funds is determined by the use of the borrowed money. The use test, established in FC of T v. Munro (1926) 38 CLR 153, is the basic test for the deductibility of interest and looks at the application of the borrowed funds as the main criterion. Where a borrowing is used to acquire an income producing asset or relates to an income producing activity, the interest on this borrowing is considered to be incurred in the course of producing assessable income. You intend buying your spouse's share of your principle place of residence which currently does not have a mortgage and then move out and rent the property. To pay for your spouse's share you intend taking out a loan. As the funds will be used to purchase your spouse's share of a property used as an investment property, you are entitled to claim a deduction for the interest incurred on the loan.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Relevant facts: You and your spouse currently own a principle place of residence which is not under finance. | You intend purchasing your spouse's share of the property and then move out and use the property as an investment property. | You will obtain a valuation from three separate real estate agents and take the median. | Relevant legislative provisions | Income Tax Assessment Act 1997 Section 8-1