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Edited version of private advice

Authorisation Number: 1052332663919

Date of advice: 19 November 2024

Ruling

Subject: Interest deductions/rental properties

Question

Are you entitled to an apportioned deduction for the loan interest incurred in relation to the construction of the dwelling prior to the dwelling being lawfully available for rent?

Answer

Yes - where the land loan and construction loan are combined, a deduction will only be available for the element of the loan interest and other borrowing costs that relate to the construction of the residence and the interest will need to be apportioned. This apportioning will apply to both loan X and loan Y on the same basis. See paragraph 26 and example 6 in Taxation Ruling 2023/3.

This ruling applies for the followingperiods:

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ending 30 June 20XX

The scheme commenced on:

X X 20XX

Relevant facts and circumstances

You recently purchased a residential block of land and are constructing a dwelling on the land in order to eventually make it available for rent. The main and only purpose for the construction is so you can derive rental income.

You are incurring the cost to construct a residential investment property.

You purchased land on X X 20XX for $XXX,000.

Property details are as follows:

•                     Residential.

•                     The property is being developed by developers in a private estate.

Construction

Construction start date is the X 20XX with a completion date expected X X 20XX.

The construction cost was $XXX,XXX.

The type of construction was a single storey house with garage

Types of loans

Loan 1

Investment Property Loan form, Bank A

The total amount borrowed was $XXX,XXX.

The break-up of the loan was as follows:

•                     Interest rate - X.XX%

•                     Term of loan XX years

•                     $XXX,XXX paid towards land purchase

•                     $XXX,XXX paid towards construction cost.

Loan 2

Equity loan - Bank B (deposit)

The break-up of the loan was as follows:

•                     Total borrowed $XXX,XXX

•                     Interest rate - X.XX%

•                     $XX,XXX paid towards land purchase

•                     $XX,XXX paid towards construction cost

Assumption

You expect to be renting out the property in the next X to X weeks, possibly early X 20X.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Income Tax Assessment Act 1997 section 26-102

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