Private ruling: interest expenses
Published: March 2015
Ruling period: Year ended 30 June 2016 | Year ended 30 June 2017
Date scheme commenced: 1 July 2015

Ruling: Q1: Is the interest incurred on a line of credit to pay interest costs on investments deductible under section 8-1 of the Income Tax Assessment Act 1997 ? | A1: Yes.

Relevant facts and circumstances: You and your spouse are expecting a child. You expect to be on a single income for a period of time. In preparation for this period you are looking to establish some savings. To do this, you intend to use a line of credit to pay interest costs associated with your investments. You and your spouse intend to save your surplus income and draw down on it whilst you are living on a single income.

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

Reasons for decision: Summary: Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows you a deduction for any loss or outgoing that is incurred in gaining or producing your assessable income, to the extent that it is not of a private, capital or domestic nature. Whether interest has been incurred in the course of gaining or producing assessable income generally depends on the purpose of the borrowing and the use to which the borrowed funds are put. Where a borrowing is used to acquire an assessable income producing asset, or relates to expenses of an assessable income producing activity, the interest on this borrowing is considered to be incurred in the course of gaining or producing assessable income. The character of a new loan which refinances a previous loan follows from that previous loan: Taxation Ruling TR 95/25. In your situation, it is accepted that the interest you incur on your new line of credit meets these requirements and is deductible under section 8-1 of the ITAA 1997. | Detailed Reasoning - Additional information: We note that your arrangement shows features which may be similar to those examined in Taxation Determination TD 2012/1. In that determination the Commissioner considered whether it was open for him to apply the anti-avoidance rules to deny part of the deduction claimed for interest incurred in certain rental property arrangements. The determination is available from our website www.ato.gov.au should you wish to review it.