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Edited version of private ruling
Authorisation Number: 1011685701210
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Ruling
Subject: Deductibility of interest and borrowing costs
Question
Are you entitled to claim the borrowing costs and interest for a loan you took our for investment purposes according to the proportion of your interest in the investment?
Answer
Yes
This ruling applies for the following periods:
1 July 2008 to 30 June 2012
The scheme commenced on:
1 July 2008
Relevant facts
You borrowed funds in your name only and have used the funds to contribute to the purchase of units in a managed fund which you hold jointly with your spouse.
The original borrowing was fully applied to the investment and has never been used for any other purpose.
As a result of this borrowing you incurred interest and borrowing costs.
Payment of the loan is being made from an account in joint names.
You and your spouse share the income from the investment in equal amounts.
You consider that the funds borrowed by you were used to fund your share of the units.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1
Income Tax Assessment Act 1997 Section 25-25
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.
Section 25-25 of the ITAA 1997 provides that you can deduct expenditure incurred in borrowing money (for example, lenders mortgage insurance, stamp duty on the mortgage contract, broker's commission and underwriter's fees) to the extent that those funds are used for the purpose of producing assessable income. Borrowing costs not exceeding $100 dollars are fully deductible in the year in which they are incurred. If the total borrowing costs exceed $100, the deduction is spread over the period of the loan or 5 years - whichever is the shorter period.
Whether interest has been incurred in the course of producing assessable income generally depends on the purpose or use to which the borrowed funds have been put. 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: Taxation Ruling TR 95/25.
However, the loss or income of an income producing property or activity must be shared according to the legal interest in that activity: Taxation Ruling TR 93/32.
In your situation, it is accepted the interest charged on the loan is incurred in producing assessable income. The losses or outgoings incurred in respect of borrowing must therefore be shared according to the interests in the investment, that is, 50% each to you and your spouse.