Private ruling: Deductibility of interest and record keeping
Date of advice: 27 June 2017
Published: October 2017
Ruling period: Year ending 30 June 2017 | Year ending 30 June 2018 | Year ending 30 June 2019 | Year ending 30 June 2020
Date scheme commenced: 1 July 2016

Ruling: Q1: Can you claim a deduction for the interest incurred on a loan from your relatives, where the money is used to purchase an investment property? | A1: Yes. Having considered your circumstances and the relevant factors the Commissioner has determined that the interest from the loan for purchasing an investment property is deductible under section 8-1 of the Income Tax Assessment Act 1997 . Further information on the deductibility of the interest from money borrowed used for an income-producing purpose can be found on our website ato.gov.au and entering Quick Code QC 48221 into the search bar at the top right of the page. | Q2: Will your spreadsheet in conjunction with your bank statements showing the interest paid be sufficient evidence for the purpose of record keeping? | A2: Yes. Having considered your circumstances and the relevant factors the Commissioner has determined that the above methods are valid for record keeping purposes. Further information on record keeping can be found on our website ato.gov.au and entering Quick Code QC 16788 into the search bar at the top right of the page.

Relevant facts and circumstances: You purchased the property as an investment property as tenants in common. In order to purchase the property you obtained an interest only loan from your relatives for $XXX in early 20XX. It was determined that the interest on the loan would be a variable interest which is currently XX% per annum. The current interest rate was determined by the current interest rate on a savings account at their commercial bank. The interest will be paid monthly. The interest payable will be calculated on the outstanding amount of the loan at the end of each month. Any amount that is paid that exceeds the monthly interest due will be deducted from the principle of the loan. The term of the loan is XX years, when the principal amount is fully paid, or earlier if the principal amount is repaid in full sooner. The interest will be paid to your relatives electronically via bank transfer from one account. The repayments will also be recorded on a spreadsheet. Both you and your relatives are Australian residents for tax purposes. The property is available for rent.

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