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Edited version of private advice
Authorisation Number: 1051541587178
Date of advice: 12 July 2019
Ruling
Subject: Interest expenses - rental property
Question
Are your interest expenses deductible?
Answer
Yes. It is accepted that the interest expenses you incur on the investment loan are in relation to your rental property and are deductible. The sole purpose of the funds from the investment loan remains as they originally were, being for income producing purposes. The error made in closing the original account does not change how the funds continue to be used. Further information about rental property expenses can be found by searching 'QC 55249' on ato.gov.au
This ruling applies for the following period:
Year ended 30 June 2019
The scheme commences on:
1 July 2018
Relevant facts and circumstances
You had a principle and interest loan (investment loan).
The loan funds were used to help purchase residential premises that were rented out.
You have been claiming a deduction for the interest expense on the investment loan.
On XX December 20XX a settlement occurred for the sale of one of the properties.
You had provided your bank with instructions on how the proceeds from the sale were to be distributed.
The bank paid out the balance of the investment loan with the funds from the settlement and closed the account. This was contrary to your instructions as the loan was to remain open and the balance to remain unchanged.
The bank has acknowledged that they did this in error, recognising that they closed the incorrect account.
The balance of the investment loan when closed was a specified amount.
As the original loan could not be re-opened, the bank opened a new loan, with a net resulting balance of the same specified amount.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 8-1