Private ruling: interest expenses
Published: August 2012
Ruling period: Year ended 30 June 2011
Date scheme commenced: 1 July 2010

Ruling: Q1: Are you entitled to a deduction for 100% of the interest expense on a jointly owned line of credit used to purchase an investment property? | A1: No

Relevant facts and circumstances: You intend on purchasing an investment property in your name only. You will be using a line of credit that is in joint names to partially fund the purchase of the property.

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

Reasons for decision: Summary: Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature. Interest paid on a mortgage over a rental property is considered an allowable deduction for the purposes of section 8-1 of the ITAA 1997. Where two taxpayers borrow jointly, both taxpayers will have presently existing pecuniary liability to discharge interest on that borrowing once it accrues and is due and payable: paragraph 6 of Taxation Ruling TR 97/7. Therefore, each of the borrowers will only incur their share of the interest expense, notwithstanding circumstances where one borrower may meet all repayments in respect of the borrowing: paragraph 6 of Taxation Ruling TR 97/7. Thus, in line with TR 97/7, you will only be entitled to a deduction for your share of the interest on the line of credit.

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