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Edited version of your private ruling
Authorisation Number: 1012465083785
Ruling
Subject: Rental property expenses
Question
Are you entitled to a deduction for your share of interest incurred the on the line of credit for the portion referable to the payment of your deductible rental expenses?
Answer: Yes
This ruling applies for the following period
Year ended 30 June 2013
Year ended 30 June 2014
The scheme commenced on
1 July 2012
Relevant facts
You purchased a rental property in 2XXX's.
You set up a line of credit facility around the same time, in joint names with your spouse.
Since that time, the line of credit has been your sole bank account, where all salary and private income goes as well as assessable rental payments.
All expenses both private and those related to the rental property are paid from the line of credit.
The line of credit has operated with a debit balance for most of the time, and interest has been paid to the bank every month.
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.
Where interest accrues periodically on a mixed purpose line of credit facility, the deductibility of accrued interest is determined by considering the application of the borrowed funds for income producing and non-income producing purposes.
The portion of the line of credit attributable to your property is directly relevant to the earning of assessable income. As such you are allowed a deduction for this portion under section 8-1 of the ITAA 1997.