Private ruling: Interest expenses
Published: October 2011
Date scheme commenced: 1 July 2010

Ruling: Q1: Are you entitled to a deduction for half the interest expenses incurred on the loan? | A2: This ruling applies for the following period Income year ending 30 June 2011 Income year ending 30 June 2012 Income year ending 30 June 2013 Income year ending 30 June 2014 The scheme commenced on 1 July 2010

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. Your spouse has owned a rental property in their name solely for approximately four years. The purchase of the property was entirely funded by a borrowing, held in the name of your spouse. You are guarantor for the borrowing. Your spouse will transfer you a half share interest in the property, through the natural love and affection provisions of the relevant stamp duties act. You will not refinance the borrowing. You will commence contributing to the interest payments of the borrowing upon the transfer of the property to joint names.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 8-1 | Income Tax Assessment Act 1936 Part IVA | Income Tax Assessment Act 1936 Section 177F

Reasons for decision: Summary: While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision. | Detailed Reasoning - Interest expenses: Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for any loss or outgoing that is incurred in gaining or producing assessable income, to the extent that it is not of a private, capital or domestic nature. A taxpayer will have presently existing pecuniary liability to discharge interest on a borrowing once it accrues and is due and payable. Therefore, a borrower will only incur their share of the interest expense, regardless of who actually pays the expense: paragraph 6 of Taxation Ruling TR 97/7. In your situation, as guarantor to the borrowing (and not a borrower), you will not incur any interest, notwithstanding the fact you will commence meeting a half share of the repayments. Accordingly, you are not entitled to a deduction for the interest you pay. | Detailed Reasoning - Part IVA: The Commissioner may decline to make the ruling in certain situations, including circumstances where the making of the ruling would prejudice or unduly restrict the administration of a taxation law: subsection 359-35(2) of Schedule 1 to the TAA. This includes situations where the making of a ruling would have no effect: paragraph 39 of TR 2006/11. Part IVA of the Income Tax Assessment Act 1936 (Part IVA) is a general anti-avoidance rule. Part IVA gives the Commissioner the discretion to cancel a 'tax benefit' (or part of a 'tax benefit') that has been obtained, or would, but for section 177F of the ITAA 1936, be obtained, by a taxpayer in connection with a scheme to which Part IVA applies. In this instance, a tax benefit has not been obtained as the deduction is not allowed under section 8-1 of the ITAA 1997. Accordingly the Commissioner will not make a ruling on the application of Part IVA.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Have you obtained a tax benefit in connection with a scheme to which Part IVA of the ITAA 1936 (Part IVA) applies? | Answer: The Commissioner declines to make a ruling on this issue.