Private ruling: Rental deductions
Date of advice: 1 September 2025
Published: 3 November 2025
Ruling period: Year ended 30 June 20YY
Date scheme commenced: 1 July 20YY

Ruling: Q1: Can you claim a deduction for interest expenses in correlation to your ownership interest for interest incurred in the 20YY-20YY income year for the portion of the loan funds used to construct the dwelling prior to the dwelling being available for rent? | A1: Yes. However, where the land and construction loan are combined, a deduction will only be available for the portion of the loan interest and other borrowing costs that relate to the construction of the dwelling and the interest will need to be apportioned (See Taxation ruling 2023/3 - paragraph 26 and Example 6). Interest on the funds borrowed for the construction of the building is deductible prior to assessable income being earned where it meets the criteria in paragraph 9 of Taxation Ruling TR 2004/4 Deductions for interest incurred prior to the commencement of, or following the cessation of, relevant income earning activities (TR 2004/4).

Relevant facts and circumstances: You and your spouse purchased a house and land package on DD MM 20YY as tenants in common. The location of the vacant land is XX XXX XXX. It is your intention to build an investment property on the land. You have a XX per cent ownership interest in the property and you spouse a XX per cent interest. You and your spouse took out an 'interest only' loan with a bank to finance the purchase of the land and construction of a dwelling. You are incurring interest on the loan. You have made progression payments for three stages of construction progress as loan advancements before the end of DD MM 20YY to the amount of $XXX,XXX. Completion of the build is expected before DD MM 20YY. You will then rent the property.

Relevant legislative provisions: Income Tax Assessment Act section 8-1 | Income Tax Assessment Act section 26-102