Private ruling: Deductions - interest expense
Date of advice: 12 May 2023
Published: 26 June 2023
Ruling period: Year ending 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX
Date scheme commenced: XX January 20XX

Ruling: Q1: Are you entitled to claim a deduction for the interest expense you incur on the loan used to purchase Exchange Traded Funds (ETFs) under section 8-1 of the Income Tax Assessment Act 1997? | A1: Yes. It is accepted that each of you incur interest expenses on a loan facility that you use to acquire ETFs in your individual names. As you receive assessable income from the ETFs the interest expense that you incur is a deductible expense. Further information about interest, dividend and other investment income deductions can be found by searching 'QC 72187' on ato.gov.au

Relevant facts and circumstances: Person A and Person B (You) have invested in the share market over a number of years across a mix of ETFs, Listed Investment Companies and individual shares. The purchases were not funded by a loan. Having reviewed your investment strategy, some of these investments will be sold, resulting in a capital gain. You invest approximately $X per month in new share purchases. To assist you with the purchases, You have established a home loan facility for the amount of $1X! structured as follows: Loan Account 1 $X! Loan Account 2 $X! Loan Account 3 $X! Loan 2 has an interest only period of 3 years. The funds from Loan 2 will be used by Person B to invest in ETFs that are placed in Person B's name alone. Loan 3 has an interest only period of 3 years. The funds from Loan 3 will be used by Person A to invest in ETFs that are placed in Person A's name alone. The ETFS pay quarterly dividends.

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