Private ruling: Deductions
Date of advice: 17 February 2025
Published: 31 March 2025
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are you entitled to claim a deduction for your share of interest incurred on the loan that was used to purchase your investment property? | A1: Yes. Taxation Ruling TR 95/25 Income tax: deductions for interest under section 8-1 of the Income Tax Assessment Act 1997 following FC of T v. Roberts; FC of T v. Smith provides the Commissioner's view regarding the deductibility of interest expenses. There must be a sufficient connection between the interest expense and the activities which produce assessable income. In your case, you and your spouse entered a financial loan arrangement. With the borrowed funds you purchased a rental property for income producing purposes. As there is a sufficient connection between the interest expense and your assessable income, you will be entitled to a partial deduction for the interest expense under section 8-1 of the Income Tax Assessment Act 1997. It is necessary to apportion the interest expense based on your ownership share of the property.

Relevant facts and circumstances: On the specified date, you and your spouse signed a contract to purchase a residential property for the sum of the specified amount. The property was purchased by you both as joint tenants, with equal ownership. You applied for a loan with a bank with a high interest rate and were granted approval. Due to the high interest rate, you made arrangements with your family. On the specified date you entered into a loan agreement with your parents to borrow an amount to purchase the property with the following arrangements: • The loan was structured as a formal loan agreement by a lawyer. • The total amount borrowed $X • The borrowed amount as for the property, stamp duty and the relevant transaction costs. • The minimum annual repayment is $X • The loan is fixed and the interest rate on commencement is % per annum. • The maturity date of the loan is the specified date • An additional % interest per annum will be due and payable when you sell the property prior to the maturity date. The rental income will be deposited into the home loan offset account connected to the home loan account. You intend to sell the property if you cannot comply with the terms of the loan agreement. On the specified date you and your spouse signed an agreement to rent the property with a real estate agency.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 8-1