Private ruling: Deduction for interest expenses
Date of advice: 13 May 2019
Published: June 2019
Ruling period: Year ended 30 June 2015 | Year ended 30 June 2016 | Year ended 30 June 2017 | Year ended 30 June 2018 | Year ending 30 June 2019
Date scheme commenced: 1 July 2014

Ruling: Q1: Are you entitled to a deduction for the portion of the interest expenses incurred for the purchase of your shares with a genuine prospect of earning dividend income? | A1: Yes. A deduction for interest expenses is allowable where interest is incurred on borrowed funds used to acquire income producing assets. In your case, you have used borrowed funds to purchased shares with the expectation of earning assessable dividend income. Therefore, you are entitled to a deduction for the interest on your loan to the extent of dividends earned.

Relevant facts and circumstances: You had a loan with Bank A which was nearly paid out. You refinanced your loan with Bank B. The purpose was to obtain additional funding to purchase shares in your name with the aim of producing assessable dividend income. After refinancing, the loan amount increased and you allocated to your linked offset account with a credit balance from those funds. You started your investment activity by making a few bank transfers from your offset account to your trading accounts to finance your shares purchases. You transferred an amount, leaving the remaining balance in your offset account. You have provided details of how the funds are traceable from your loan to the purchase of the shares. The funds were then transferred to several different trading accounts and other broker accounts and were used to purchase shares. You ultimately used the redraw facility on your loan to purchase shares with the intention of earning assessable dividend income. You have also purchased shares for capital purposes. You have provided details of how the transactions were made. You sold some of your shares without having earned any dividends and you have not yet earned any dividends on the shares you have retained. You sold shares before any dividend was paid because the market for share trading was bad.

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