Private ruling: Expenses - redraw on loan, legal ownership
Published: June 2013
Ruling period: Year ended 30 June 2013 | Year ended 30 June 2014 | Year ended 30 June 2015
Date scheme commenced: 1 July 2012

Ruling: Q1: Are you entitled to a full deduction for interest on a redraw facility used to purchase income producing assets? | A1: Yes

Relevant facts and circumstances: You have a borrowing. The loan account has a redraw facility. The initial purpose of the loan account was to fund a non income producing asset, your primary residence. You intend to repay this loan in full but keep the account open so that funds will be available for redraw. So as to utilise the favourable interest rate attached to your mortgage account, you intend on using the redraw facility to purchase income producing assets such as managed investment funds and shares.

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. In your situation, it is accepted the interest expense you incur on the loan will be referrable to the income producing assets purchased in your name. You are therefore entitled to a deduction for 100% of the interest expense attributable to the funds expended on the purchase and improvement related to those properties.