| Disclaimer This edited version has been archived due to the length of time since original publication.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 written advice
Authorisation Number: 1012770948139
Ruling
Subject: interest expenses
Question
Is the interest incurred on a line of credit to pay interest costs on investments deductible under section 8-1 of the Income Tax Assessment Act 1997?
Answer
Yes.
This ruling applies for the following period
Year ended 30 June 2016
Year ended 30 June 2017
The scheme commences on
1 July 2015
Relevant facts and circumstances
You and your spouse are expecting a child.
You expect to be on a single income for a period of time.
In preparation for this period you are looking to establish some savings.
To do this, you intend to use a line of credit to pay interest costs associated with your investments.
You and your spouse intend to save your surplus income and draw down on it whilst you are living on a single income.
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 you a deduction for any loss or outgoing that is incurred in gaining or producing your assessable income, to the extent that it is not of a private, capital or domestic nature.
Whether interest has been incurred in the course of gaining or producing assessable income generally depends on the purpose of the borrowing and the use to which the borrowed funds are put. Where a borrowing is used to acquire an assessable income producing asset, or relates to expenses of an assessable income producing activity, the interest on this borrowing is considered to be incurred in the course of gaining or producing assessable income. The character of a new loan which refinances a previous loan follows from that previous loan: Taxation Ruling TR 95/25.
In your situation, it is accepted that the interest you incur on your new line of credit meets these requirements and is deductible under section 8-1 of the ITAA 1997.
Additional information
We note that your arrangement shows features which may be similar to those examined in Taxation Determination TD 2012/1. In that determination the Commissioner considered whether it was open for him to apply the anti-avoidance rules to deny part of the deduction claimed for interest incurred in certain rental property arrangements. The determination is available from our website www.ato.gov.au should you wish to review it.