Private ruling: Interest deduction
Published: March 2014
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Are you entitled to a deduction for the portion of interest paid on a split loan facility used to buy an investment property? | A1: Yes

Relevant facts and circumstances: You currently have a home loan facility on your main residence. You intend to use your home loan facility to purchase an investment property where the amount used to purchase the investment property will be split into a separate account under the same facility. Your home loan facility will consist of two accounts, one for the investment property loan and the other for private purposes. Each split account will incur its own interest and will require its own separate repayments.

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 (ITAA 1997) allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature. Taxation Ruling 2000/2 Income tax: deductibility of interest on moneys drawn down under line of credit facilities and redraw facilities addresses the deductibility of interest on moneys drawn down under line of credit facilities and redraw facilities. Whether interest has been incurred in the course of producing assessable income generally depends on the purpose or use to which the borrowed funds have been 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. Where interest accrues periodically on a line of credit facility on the outstanding balance of a mixed purpose line of credit, the deductibility of accrued interest is determined by considering the application of the borrowed funds for income producing and non-income producing purposes. Where a taxpayer has a mixed purpose line of credit account the interest needs to be apportioned between income producing and non-income producing purposes. In your case, you intend to use your home loan facility to drawn down an amount to purchase an investment property. Therefore you are entitled to deduction for the portion of interest on the home loan facility that can be attributed to the purchase of the investment property.