| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of your private ruling
Authorisation Number: 1012304431063
This edited version of your ruling will be published in the public register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.
Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.
Ruling
Subject: Rental property expenses
Question
Are you entitled to a deduction for 100% of the interest expense on refinanced loans used to purchase your share of jointly owned investment properties?
Answer:
Yes
This ruling applies for the following period
Year ended 30 June 2012
The scheme commenced on
1 July 2011
Relevant facts and circumstances
You own two properties as joint tenants with your spouse.
There is one loan for each property.
The loans relate 100% to the purchase of the properties.
The loans are in joint names.
You intend to refinance the loans in such a way that you and your spouse each obtain one loan for each property solely in your own names. This will enable you and your spouse to arrange your finances to better suit your individual financial positions.
The restructure will mean that you are able to prepay your interest for 12 months and your spouse is able to choose not to.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 8-1
Reasons for decision
Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 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.
Interest paid on a mortgage over a rental property is considered an allowable deduction for the purposes of section 8-1 of the ITAA 1997.
The refinancing of a loan does not of itself break the nexus between outgoings of interest under the loan and the prior income earning activities. However the decision to refinance may, in all the circumstances, lead to the inference being drawn that the taxpayer has made a conscious decision to extend the loan, and has done this in order to derive an ongoing commercial advantage.
In your case, you and your spouse wish to separate your joint investment property loans into separate loans held solely in your individual names in order to align your repayment options with your financial situations.
As the refinance will not be carried out to extend the loan or achieve an ongoing commercial advantage the nexus between the incurring of the interest expense and the earning of assessable income from the investment properties will not be broken.
As such you are entitled to a 100% deduction on the interest accruing on your refinanced investment property loans.