Private ruling: Income tax - deductibility of interest
Date of advice: 28 May 2026
Published: 17 August 2026
Ruling period: Year ending 20XX | Year ending 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Can you claim a deduction for the interest expense you incurred on the external loan? | A1: Yes, you can claim a deduction for the interest expense you incurred on the external loan. Although the stakeholder loan is interest-free we accept that this is relevant for deriving assessable income (priority distributions). Therefore, the interest expense on the external loan has a sufficient connection in gaining and producing income. Also, the interest expense does not relate to private or domestic activities and is not incurred in gaining exempt income.

Relevant facts and circumstances: Person A and Person B (collectively referred to as 'you') are primary beneficiaries of the Entity A (The Trust). You proposed to obtain an external loan registered under your personal names. You agreed to lend 100% of the external loan funds to the Trust as an interest-free stakeholder loan. In return for providing this interest-free stakeholder loan, you are entitled to priority distributions representing repayments. The priority distributions will be received as tenants in common in equal shares. The trustees will use the stakeholder loan to acquire a residential investment property, purchased from an unrelated third party. The investment property will: • be held as a long-term investment • be leased to third-party tenants at commercial, arm's length rent under a written lease agreement. • be purchased at a cost of $XXX-$XXX; • be funded 70-99% by the stakeholder loan (excluding acquisition and transaction costs). The property will not be used by you, your family members, or related entities for any domestic or private purpose. Clause XX of the draft trust deed provides certain conditions on stakeholder loans. The distributions will be made strictly in accordance with the deed and will be included in your assessable income.

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