Private ruling: Deductions - interest expenses after sale of investment asset
Date of advice: 26 October 2023
Published: 4 December 2023
Ruling period: Year ended XX/MM/CCYY | Year ended XX/MM/CCYY | Year ending XX/MM/CCYY | Year ending XX/MM/CCYY | Year ending XX/MM/CCYY | Year ending XX/MM/CCYY | Year ending XX/MM/CCYY
Date scheme commenced: XX/MM/CCYY

Ruling: Q1: Are you entitled to claim a deduction for your share of the associated interest expense incurred on the loan for an investment property after the property was sold? | A1: Yes, you can claim a deduction for the associated interest expense as the Commissioner is satisfied that your situation meets the deductibility requirements expressed in section 8-1 of the Income Tax Assessment Act 1997 and also 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). The requirements of Taxation Ruling TR 2000/2 are also satisfied in your circumstances.

Relevant facts and circumstances: You and your spouse purchased a property which was an investment property on XX/MM/CCYY for $XXX,XXX. The property was financed with a loan from a Bank. You own another property which is your primary place of residence. The property was financed with a split loan between you and your spouse from a Bank. You sold the investment property at a loss on XX/MM/CCYY and settlement occurred on XX/MM/CCYY. A carried forward capital loss was declared in your 20XX income tax return of $XX,XXX. There were insufficient funds from the sale of the investment property to reduce the loan in full. The outstanding loan amount was paid using your personal savings and redrawing from the primary residence property loan. The redrawn amount was $XX,XXX. Following this, you refinanced this loan with a Bank on XX/MM/CCYY. This loan is partly for your main residence and partly for the capital loss from the investment property. You will apportion the interest charges and only claim the interest on the portion of the loan used for income producing purposes. You have claimed all the investment income and expenses in your income tax returns. The investment property has always been genuinely available for rent until it was sold. The property has had no private use.

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