Private ruling: Rental property expenses - interest
Published: April 2013
Ruling period: Year ending 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Are you entitled to a deduction for all the interest incurred on the loan? | A1: Yes

Relevant facts and circumstances: You obtained borrowings. You drew down the borrowing to acquire income producing rental properties, the legal title for those properties being held in your name solely.

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. Whether interest has been incurred in the course of gaining or producing assessable income generally depends on the purpose of the borrowing and the use to which the borrowed funds are put. Where a borrowing is used to acquire an assessable income producing asset, or relates to expenses of an assessable income producing activity, the interest on this borrowing is considered to be incurred in the course of gaining or producing assessable income. The character of a new loan which refinances a previous loan follows from that previous loan: Taxation Ruling TR 95/25 In your situation, it is accepted the interest is referable to the rental properties and is therefore incurred in the production of your assessable income. Accordingly you are entitled to a deduction for the interest incurred on the loan.