Edited version of private advice

Authorisation Number: 1052523563995

Date of advice: 1 April 2026

Ruling

Subject: Deductions - interest expense

Question

Can you claim a deduction for the interest expense you incur on your Bank B Loan?

Answer

Yes.

It is accepted the interest expense you incur is referable to your Investment Properties and meets the relevant factors contained in Taxation Rulings TR 95/25 and TR 2004/4.

Further information about rental property expenses can be found by searching 'QC 105987' on ato.gov.au

This ruling applies for the following period:

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commenced on:

20 July 2026

Relevant facts and circumstances

You owned two investment properties (the Investment Properties) in joint names with your partner, Property A and Property B.

You and your partner had a loan in joint names for the purchase of the Investment Properties which incurred interest expense.

In XXX 20XX you and your partner separated. You entered into a Separation Agreement (the Agreement) in relation to the division of your assets which was signed by a Justice of the Peace.

It was stated in the Agreement that due to the downturn in the market, the Investment Properties were to remain in joint names until both you and your partner agreed to sell them.

The Investment properties were purchased at a time where the market was booming in City A. Soon after the market crashed.

In addition to the crash in the market, Property A had some major structural and X issues which if you continued to own the property would have required additional monies for repairs to the property as well as replacement repairs to the X that had never worked.

You attempted over many years to work with the banks to split the assets between yourself and your partner, however as all the properties listed in the Agreement (other than the block of land which was transferred to your partner) were under a cross security arrangement with each other, and with your partner not having sufficient capacity (due to other personal debts they incurred after the separation) to take on any of the debt themselves, you were left with no alternative but to sell the Investment Properties to finalise the financial separation.

You held the Investment Properties until such time that the market improved to a point where you could sell the Investment Properties and at least recover some of the losses.

The Investment Properties were used to earn rental income up until they were sold in XXX 20XX.

The market crash together with the structural issues resulted in the Investment Properties being sold for less than they were originally purchased for and as a result the loan could not be paid off in full.

Prior to sale, there was $X owing on loans for the Investment Properties.

Your share of the debt was 50%.

You received 50% of the proceeds from the sale of the Investment Properties being $X

You also received $X in the separation agreement.

You paid these amounts towards your share of the debt so that only $X remained.

The proceeds from the sale of the family home were used to satisfy much of the shortfall from the sale of the Investment Properties.

Under the Agreement your partner was entitled to the major share of the family home. As a result, they used the proceeds from its sale to pay back their share of the loans for the Investment Properties.

The remaining balance owing on the loans for the Investment Properties is owed by you.

You have refinanced the balance of the loan in joint names at Bank A to a loan in your sole name at Bank B, with the facility being secured by your principal place of residence.

The new Bank B Loan consists solely of the balance outstanding from your share of the Investment Properties and was not used for any other purpose.

You did not have any other means by which to pay off the remaining balance.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

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