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Edited version of private ruling
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Ruling
Subject: Rental property interest expenses
Are you entitled to a deduction for rental property interest expenses?
Yes.
This ruling applies for the following period
Year ended 30 June 2011
The scheme commenced on
1 July 2010
Relevant facts
Your spouse owns the property in which you currently live.
You intend purchasing the property from them at full market rate using a loan taken out in your name only.
Once you purchase the property, you intend moving out and using the property to rent to a third party through a property manager.
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.
Whether interest has been incurred in the course of producing assessable income generally depends on the use to which the borrowed funds have been put. Where a borrowing is used to acquire an income producing asset, the interest on this borrowing is considered to be incurred in the course of producing assessable income.
In your case, you intend borrowing funds to purchase a property at market value from your spouse which will be used as rental property. Therefore, interest on the loan to purchase the property is deductible from the time that the property becomes available for rent.