Private ruling: Rental property expenses
Published: March 2013
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Are you entitled to a deduction for interest incurred on a loan, which is referable to your investment properties? | A1: Yes


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 is referable to your investment properties. 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.

Relevant facts: You own two investment properties solely in your name. | You intend on using borrowed funds to pay some of the purchase and improvement costs of the investment properties.