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Edited version of your private ruling
Authorisation Number: 1012274534288
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Ruling
Subject: Rental property interest
Question:
Are you entitled to a deduction for rental property interest?
Answer:
Yes.
This ruling applies for the following period
Year ended 30 June 2013
Year ended 30 June 2014
Year ended 30 June 2015
Year ended 30 June 2016
The scheme commenced on
1 July 2011
Relevant facts
You and your spouse currently own a principle place of residence which is not under finance.
You intend purchasing your spouse's share of the property and then move out and use the property as an investment property.
You will obtain a valuation from three separate real estate agents and take the median.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1
Reasons for decision
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.
Taxation Ruling TR 95/25 provides that the deductibility of interest on borrowed funds is determined by the use of the borrowed money. The use test, established in FC of T 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.
Where a borrowing is used to acquire an income producing asset or relates to an income producing activity, the interest on this borrowing is considered to be incurred in the course of producing assessable income.
You intend buying your spouse's share of your principle place of residence which currently does not have a mortgage and then move out and rent the property. To pay for your spouse's share you intend taking out a loan.
As the funds will be used to purchase your spouse's share of a property used as an investment property, you are entitled to claim a deduction for the interest incurred on the loan.
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