Private ruling: Interest deduction - rental property - redraw facility
Date of advice: 29 January 2020
Published: March 2020
Ruling period: Year ending 30 June 2020
Date scheme commenced: 1 July 2019

Ruling: Q1: Can you redraw funds from your main residence loan to pay off your investment property loan and continue to claim interest as a deduction for the redrawn portion of the new loan? | A1: Yes. Where a loan facility allows for redraws of extra repayments, we consider those redraws constitute new borrowings of funds. Interest on a new loan will be deductible if the new loan is used to repay an existing loan which, at the time of the second borrowing, was being used in an assessable income producing activity.

Relevant facts and circumstances: You have a main residence loan and an investment property loan. Your main residence loan has a redraw facility. You intend to redraw funds from your main residence loan to repay your investment property loan down to a nil balance. Your investment property is currently rented.

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