Private ruling: Interest deductions
Published: September 2014
Ruling period: Income year ended 30 June 2014
Date scheme commenced: 1 June 2013

Ruling: Q1: Are you able to claim the extra interest paid on the mortgage as a consequence of the $x drawdown as an expense for the rental property? | A1: Yes

Relevant facts and circumstances: You have a mortgage over your private property. You have made excess payment on the mortgage of $x which you can draw down on any time. Excess payments are made over and above the minimum mortgage repayments. You have a rental property which required repairs of $x during the year. To pay for those repairs funds were drawn again the excess mortgage repayments. As a consequence your mortgage has gone up by $x which means that you will pay more interest.

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 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. Taxation Ruling TR 95/25 provides the Commissioner's view regarding the deductibility of interest expenses. As outlined in TR 95/25, there must be a sufficient connection between the interest expense and the activities which produce assessable income. TR 95/25 specifies that to determine whether the associated interest expenses are deductible, it is necessary to examine the purpose of the borrowing and the use to which the borrowed funds are put. The Commissioner's view on the use of redraw facilities is contained in Taxation Ruling TR 2000/2. It provides at paragraph 21 and 22 that: The deductibility of interest on a further borrowing of money under a redraw facility depends upon the use to which the redrawn funds are put. Where the original borrowing is for non-income producing purposes and the taxpayer uses the redrawn funds wholly or partly for income producing purposes, that part of the accrued interest attributable to the redrawn funds used for income producing purposes is deductible. Consequently the interest component that relates to the drawn down funds used for rental repairs will be deductible.