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Edited version of private advice
Authorisation Number: 1051677586287
Date of advice: 15 May 2020
Ruling
Subject: Rental deductions - interest
Question
Is the interest on a loan taken out to purchase a rental property deductible when the loan funds have been temporarily held in an offset account attached to this loan prior to purchasing the rental property?
Answer
Yes. Your share of the interest expenses you incur relate to your rental property and are deductible to the extent to which the funds are used in relation to the rental property.
This ruling applies for the following periods:
Year ended 30 June 2019
Year ending 30 June 2020
Year ending 30 June 2021
Year ending 30 June 2022
The scheme commences on:
1 July 2018
Relevant facts and circumstances
You refinanced a loan for an existing rental property solely owned by you in 20XX.
You used this property as security to create a separate loan account with an offset deposit account.
The funds for the new loan were deposited to the offset account in full. Therefore any interest charge accruing on the loan was offset by a credit from the funds held in this account.
You later purchased a XX% share in another rental property.
The funds remained in the offset account until you withdrew the money from it to partly fund the purchase of the second rental property.
The interest on the loan was then no longer being fully offset by the deposit funds and interest begun accruing on it.
The property became available for rent in 20XX and is currently rented at market rates to unrelated tenants.
Relevant legislative provisions
Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)