Taxation Determination

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?

  • Please note that the PDF version is the authorised version of this ruling.

FOI status:

may be releasedFOI number: I 1213945

This Determination, to the extent that it is capable of being a 'public ruling' in terms of Part IVAAA of the Taxation Administration Act 1953 , is a public ruling for the purposes of that Part. Taxation Ruling TR 92/1 explains when a Determination is a public ruling and how it is binding on the Commissioner. Unless otherwise stated, this Determination applies to years commencing both before and after its date of issue. However, this Determination does not apply to taxpayers to the extent that it conflicts with the terms of a settlement of a dispute agreed to before the date of issue of the Determination (see paragraphs 21 and 22 of Taxation Ruling TR 92/20).

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.

Example 1

Zeb owns his own home and does not have a mortgage outstanding. He decides to invest in a rental property. He obtains a bank loan in order to buy a rental property. The bank requires Zeb to mortgage his home as security for the loan to buy the rental property.
As all the money is used to buy a rental property, interest incurred on the loan is an allowable deduction.

Example 2

Debbie has finished paying off her home and has decided she would like to do some renovations to her home and buy a rental property. She borrows $100,000 from the bank, using her home as the security for the loan. Debbie uses $20,000 to renovate her home and the remaining $80,000 to buy a rental property.
As only 8/10 of the loan was used for the purpose of buying the rental property, only 8/10 of the interest is an allowable deduction.

Commissioner of Taxation
28/1/93

Previously issued as Draft TD 92/D194

References

ATO references:
NO T95 Pt8 PNR

ISSN 1038 - 8982

Subject References:
deductibility of interest,
income producing property,
interest,
security

Legislative References:
ITAA 51(1)

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).