Private ruling: Rental Property - interest
Published: August 2017
Ruling period: Year ended 30 June 2014 | Year ended 30 June 2015 | Year ended 30 June 2016 | 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 2013

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


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

Reasons for decision: Summary: 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 income producing asset or relates to an income producing activity, the interest on this borrowing is considered to be incurred in the course of producing assessable income. Accordingly, it follows that if a loan is used for investment purposes from which income is to be derived, the interest incurred on the loan will be deductible. Interest on a new loan used to repay an existing loan will generally also 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. (Taxation Ruling TR 95/25 Income tax: deductions for interest under section 8-1 of the Income Tax Assessment Act 1997 following FC of T v. Roberts; FC of T v. Smith). Given consideration of the facts on a whole, we accept the interest incurred on the loans is referable to your investment property and fully deductible.

Relevant facts and circumstances | You and your spouse applied for finance with the intention of acquiring an investment property. | A joint, interest only investment loan was approved. This loan was fully drawn down, with the funds being fully expended on the investment activities. | You and your spouse entered into a contact of sale as joint tenants, to purchase a vacant block of land. | You and your spouse entered into a contract with a builder, to construct a dwelling on the vacant block. | You and your spouse approached the financial institution for additional finance to complete the construction of the dwelling. A joint, interest only investment loan was approved. | This loan was partially drawn down to refinance the original loan and to complete the settlement of the vacant block of land. | The remaining undrawn balance was progressively drawn down to complete the construction of the dwelling. | The building was completed in early xxxx and was then handed over to your real estate agent for listing. | A rental agreement was entered into and the property has been tenanted since mid-xxxx.