Private ruling: Rental property deductions
Published: March 2015
Ruling period: Year ending 30 June 2015 | Year ending 30 June 2016 | Year ending 30 June 2017 | Year ending 30 June 2018
Date scheme commenced: 1 July 2014

Ruling: Q1: Are you entitled to a deduction for 100% of the interest incurred on a loan for your investment property? | A1: Yes.

Relevant facts and circumstances: You intend to purchase a rental property and the title will be solely in your name. You will be obtaining a loan to fund the purchase of this property. The loan will be joint names (both you and your spouse). This is a requirement of the financial institution to satisfy their loan servicing requirements.

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 allows you a deduction for any loss or outgoing that is incurred in gaining or producing your assessable income, to the extent that it is not of a private, capital or domestic nature. Whether interest has been incurred in the course of gaining or producing assessable income generally depends on the purpose of the borrowing and the use to which the borrowed funds are 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. The character of a new loan which refinances a previous loan follows from that previous loan: Taxation Ruling TR 95/25. Taxation Ruling TR 93/32 provides that you must share the net profits or losses from your rental property in accordance with the legal title unless, in rare instances, the beneficial interest differs from the legal title. In situations relating to spouses, we consider the legal title to correctly reflect the beneficial ownership. In your situation, there is no evidence to suggest there was any intention your spouse would acquire any ownership interest in the property. It is accepted the interest incurred on the loan referable to the purchase of the rental property meets the necessary requirements and you are entitled to a deduction for the entire amount of interest.