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Edited version of private advice
Authorisation Number: 1052410409579
Date of advice: 20 June 2025
Ruling
Subject: Deductions
Question 1
Are you entitled under section 8-1 of the Income Tax Assessment Act 1997 to a deduction for interest expenses of a residual loan after the investment property was sold?
Answer 1
Yes
The interest on the funds borrowed on the residual loan after the investment property was sold is deductible as it meets the criteria in paragraphs 10,11 and 12 of Taxation Ruling TR 2004/4 Deductions for interest incurred prior to the commencement of, or following the cessation of, relevant income earning activities.
Question 2
Are you entitled under section 8-1 of the Income Tax Assessment Act 1997 to a deduction for interest expenses of a residual loan after the investment property was sold with the security for loan being your main residence?
Answer
Yes
TD 93/13 Income tax: is interest paid on a loan used to acquire income producing property an allowable deduction where non income producing property (e.g. the family home) is used as security for the loan? states:
1. Yes. The deductibility is determined by the use of the borrowed money. If the money is used to buy income producing property, the interest expense is an allowable deduction.
2. If the money borrowed is used only partly to produce assessable income, only that part of the interest which relates to the production of assessable income is an allowable deduction.
This ruling applies for the following period:
Year ended 30 June 20XX
The scheme commenced on:
X March 20XX
Relevant facts and circumstances
You owned an investment property.
You owned the property as joint tenants.
You financed the purchase through Bank A.
You refinanced the loan with Bank B.
There were two loan accounts with Bank B.
The security for Bank B account 1 was the investment property.
Bank B account 2 was a mixed home and investment loan.
The security for Bank B account 2 was your main residence.
You sold the investment property.
You sold the investment property for a loss.
Bank B account 1 was fully paid out after the sale of the investment property.
You were unable pay out Bank B account 2 funds borrowed for the investment property.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 8-1