Private ruling: Deductions - interest expenses after sale of investment asset
Date of advice: 30 May 2022
Published: August 2022
Ruling period: Year ended 30 June 20XX.
Date scheme commenced: 01 July 20XX.

Ruling: Q1: Are you entitled to a deduction for interest expenses incurred on loan money used to purchase an investment property after the sale of the property? | A1: Yes, the Commissioner is satisfied that your situation meets the deductibility requirements expressed in paragraphs 10 to 14 of Taxation Ruling TR 2004/4 (about claiming deductions for interest incurred prior to the commencement of, or following the cessation of, relevant income earning activities) for the 20XX income year.

Relevant facts and circumstances: Some time ago you purchased a property. You borrowed a total of $XXX,000 to finance the full purchase price of the property from the Bank A (the loan). The loan was subject to standard variable rates. The loan term was XX years and carried an interest only term of X years. The loan was subsequently refinanced at the end of the interest only term, under a loan type that also carried an interest only term (refinanced loan). The refinanced loan was not used for personal reasons and remained separate from your residential mortgage to ensure the tax treatment was able to be reported accurately. The property was available for rent on the day of settlement. The property was purchased with a tenant in place and the lease was continued. The property was never unavailable for rent and never used for personal reasons. You included the rental income and deductions in your income tax returns from the date of purchase until it was sold. Approximately ten years after you purchased the property, the property was sold for $XXX,000 The full proceeds of the sale of the property were paid onto the refinanced loan, leaving $XXX,000 due. You applied to Bank A (via a mortgage broker) to meet the market with its interest rate on your refinanced loan. The request was declined, though you were granted some rate relief. It was however still uncompetitive, and you commenced marketing the property. Shortly after the property was sold the refinanced loan was refinanced again through Bank B with a term of XX years at the most competitive interest rate available. The Bank B loan was used entirely to clear the refinanced loan held with Bank A. The Bank B loan was not used for personal reasons and remained separate from your residential mortgage to ensure the tax treatment was able to be reported accurately.

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