Private ruling: Investment expenses
Date of advice: 6 December 2024
Published: 13 January 2025
Ruling period: Year ending XX June 20XX
Date scheme commenced: XX July 20XX

Ruling: Q1: Can the portion of the interest on your investment loan that relates to income producing purposes continue to be tax deductible where a portion of the borrowed funds was used incorrectly for personal usage, if the interest claim is correctly apportioned between the income producing usage and the personal usage? | A1: Yes. Where borrowed funds were used for both income producing and non-income producing purposes, the portion of the interest that relates to the funds used for income producing purposes is deductible under section 8-1 of the Income Tax Assessment Act 1997 . The apportionment of the interest between the income producing and non-income producing purposes must be made on a fair and reasonable basis. Based on the information provided, the method of apportionment used in your case is fair and reasonable. For more information, see Taxation Rulings TR 95/25 Income tax: deductions for interest under section 8-1 of the Income Tax Assessment Act 1997 following FC of T v. Roberts; FC of T v. Smith and TR 2000/2 Income tax: deductibility of interest on moneys drawn down under line of credit facilities and redraw facilities.

Relevant facts and circumstances: You had the following loan structure with Bank A secured against your principal place of residence: • Home loan • Home loan offset account • Investment loan • Investment loan offset account. The investment loan was being used to invest into managed funds via a managed funds investment account. As the investment loan had reached its limit, and seeking a better rate, you moved your lending to Bank B. The lending structure remained the same, however the investment loan was increased by $Y to $Z. This should have resulted in: • ($Z) investment loan • $Y investment loan offset account The idea was for the $Y to be transferred from the investment loan offset account at a set amount of $Q per month to dollar cast average into the market. The re-mortgage was completed on XX/XX/2024 but the $Y was incorrectly transferred into your home loan offset account rather than your investment loan offset account. The result of this has been that you have been paying interest on the full loan of $Z for W months, rather than on the loan amount net of the offset account. You have also made W x $Q monthly investments from your home loan offset account. You will transfer funds, calculated as follows, back from your home loan offset account into your investment loan offset account: • $Y - (W X $Q) Your financial adviser has calculated the amount of extra interest that you paid on your investment loan that will not be tax deductible for the period the funds were incorrectly in your home loan offset account and this will be provided to your accountant for your 2024-25 tax return. Going forward the investment loan and investment loan offset account will only be used for investment into your managed fund investment account.

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