Private ruling: Interest expense
Date of advice: 2 January 2018
Published: May 2018
Ruling period: Year ended 30 June 2018
Date scheme commenced: 1 July 2017

Ruling: Question and answer | Are you entitled to claim a deduction for your share of interest incurred on an investment loan? | Yes.


Relevant legislative provisions: Section 8-1 of the Income Tax Assessment Act 1997

Reasons for decision: Summary: Interest is deductible under section 8-1 of the Income Tax Assessment Act 1997 to the extent that it is incurred in gaining or producing assessable income or in carrying on a business, provided those expenses are not capital, private or domestic in nature. Whether interest has been incurred in the course of producing assessable income generally depends on the use to which the borrowed funds have been put. The 'use' test, established in Federal Commissioner of Taxation v Munro (1926) 38 CLR 153, is the basic test for the deductibility of interest, and looks at the application of the borrowed funds as the main criterion. In your case, you borrowed the funds with the expectation of receiving interest income from the Facility Agreement and there is no personal use component. You are, therefore, entitled to a deduction for your share of the interest incurred on the investment loan.

Relevant facts: You and someone else have taken out a loan of $ to invest in #. | There is no personal use component in the investment loan and the funds are entirely used to meet a Facility Agreement that you and someone else entered. | The interest rate on your investment with is X% per annum. | The interest rate on the investment loan with is less.