Private ruling: Loan interest deduction
Published: July 2013
Ruling period: Year ended 30 June 2014 | Year ended 30 June 2015 | Year ended 30 June 2016 | Year ended 30 June 2017 | Year ended 30 June 2018
Date scheme commenced: 1 July 2013

Ruling: Q1: Are you eligible to claim the interest on a loan to acquire half of your spouse's property? | 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 a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income or a provision of the taxation legislation excludes it. The deductibility of interest on borrowed funds is determined by the use of the borrowed money. You intend to borrow funds to purchase half of the property owned by your spouse at market value and to earn rental income from that property. As you are using the borrowed funds to purchase an income producing asset, you will be entitled to a deduction for the interest expense on the loan for the period the property is rented or available for rent. The fact you purchased the portion of the property from your spouse does not change this decision as the transaction will be at arms length and you are not already a co-owner of the property you are purchasing.

Relevant facts: You intend to borrow funds to allow you to purchase, at market value, a half share of your spouse's property which will then be rented. You have obtained an independent valuation of the property. | You and your spouse wish to hold all assets in joint names and believe it is more cost effective for you to purchase the half share than for your spouse to sell the property and both of you to purchase another property in joint names.