ATO Interpretative Decision
ATO ID 2001/32 (Withdrawn)
Deductions and expenses: Interest on Loan to Refinance an investment property.
FOI status: may be released
||This ATO ID is withdrawn as the interpretative issue is covered in Taxation Ruling TR 95/25.
||This document has changed over time. View its history.
Status of this decision: Decision Withdrawn 4 November 2005
|CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.|
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Whether interest on a loan taken out to refinance an investment property is deductible under Income Tax Assessment Act 1936 subsection 51(1).
The interest on the new loan is deductible under Income Tax Assessment Act 1936 subsection 51(1) as it is an outgoing incurred in gaining or producing assessable income.
The taxpayer purchased a rental property. The taxpayer purchased the property using funds received on redundancy, funds from relatives and funds from the bank. In relation to the funds obtained from relatives, the taxpayer did not claim any interest amounts.
The last tenants caused substantial damage to the property. Before carrying out necessary repair work (which is not capital in nature), the taxpayer borrowed further funds.
In order to repay the monies borrowed from relatives and credit institutions, the taxpayer took out a new loan to refinance the entire package.
Reasons For Decision
Expenditure will be deductible under subsection 51(1) of the Income Tax Assessment Act 1936 if its essential character is that of expenditure that has a sufficient connection with the operations or activities which more directly gain or produce the taxpayer's assessable income, provided that the expenditure is not of a capital, private or domestic nature. ( Lunney & Anor v FC of T (1958) 100 CLR 478.)
In taking out the loan, the taxpayer was merely consolidating all the expenses relating to the rental property. The interest that is incurred on the loan to repay the amounts borrowed for the rental property satisfy subsection 51(1) of the Income Tax Assessment Act 1936 , as they are outgoings incurred in gaining or producing assessable income.
Date of decision: 20 August 1997
Income Tax Assessment Act 1936
Lunney & Anor v. FC of T
(1958) 100 CLR 478
Rental property income
Rental property loan interest expenses
Siebel/TDMS Reference Number: PAR23783
Business Line: Small Business/Individual Taxpayers
Date of publication: 4 June 2001
|ATO ID 2001/32 (Withdrawn) history