Edited version of private advice

Authorisation Number: 1052302962990

Date of advice: 9 September 2024

Ruling

Subject: Assessable income

Question

Is the reimbursement of interest from your parent's estate in relation to the loan you made to them ordinary income?

Answer

No.

Based on the information provided to the Commissioner, the interest you will receive in the relevant income year from your parent's estate is not ordinary income and therefore not required to be declared in your tax return.

The interest being paid to you from your parent's estate is a reimbursement of the interest you paid on your home loan relating to the borrowed funds which you drew down from your home loan.

This ruling applies for the following period:

Year ending 30 June YYYY

The scheme commenced on:

1 July YYYY

Relevant facts and circumstances

You loaned your parent a sum of money a number of years ago.

A loan agreement was prepared which stated that "the borrower agrees to repay the principal sum together with the amount of any interest incurred by the lender" within a number of days of the loan being called in.

The loan was never called in and no repayments were ever made.

Your parent passed away a couple of years ago.

You drew down on your mortgage to fund the loan to your parent.

As a result, you did incur additional interest expenses during the life of the loan.

Your parent's will directs the trustee to repay the loan and interest in accordance with the terms of the agreement and in addition to such repayment to pay you an additional amount equivalent to the costs incurred.

Your tax agent has calculated the interest costs of the additional draw down on the mortgage, using the interest rates you were charged over the applicable period.

The funds will be paid to you from your parent's estate in the relevant financial year.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5