Private ruling: Rental deductions
Date of advice: 1 April 2026
Published: 9 June 2026
Ruling period: Year ended 30 June 20YY
Date scheme commenced: DD MM 20YY

Ruling: Q1: Are you entitled to a deduction for the loan interest on the construction of the rental properties prior to them being available for rent? | A1: Yes. Based on the information provided to the Commissioner you can have a deduction for your share of the interest on the portion of the loan used to construct the rental property. You can apportion the loan interest and claim a deduction for the portion of the loan interest relating to the construction of the rental properties prior to the properties being available for rent. You can include the amount in a rental schedule in the return. The interest on the portion of the loan relating to the construction of the rental properties is an allowable deduction under Section 8-1 of the Income Tax Assessment Act 1997 . Section 26-102 of the ITAA 1997 does not prevent you from claiming a deduction for the portion of the interest on the loan used to construct the rental properties.

Relevant facts and circumstances: You jointly own the residential property. The property was originally purchased as a single dwelling and was genuinely available for rent over a number of years. With the intention of redeveloping the site, you and the joint owner paid the associated construction deposit to facilitate the demolition of the existing dwelling and the construction of residential dwellings. The tenant vacated the premises a couple of years ago. Relevant building and planning permits for the redevelopment were issued, followed by the execution of a formal building contract. Demolition works, alongside initial construction activities, commenced a few weeks after the contract executed. Construction on the dwellings commenced on DD MM 20YY and was completed on DD MM 20YY. The dwellings were available for rent in the following year after construction stated. During the relevant income year, you and the joint owner made several drawdowns against your existing loan, originally used to acquire the property, to fund payments to the builder and demolition contractors. You and the joint owner drew down a new loan specifically to finance construction costs incurred to date, as well as the remaining anticipated construction costs.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 8-1 | Income Tax Assessment Act 1997 section 26-102