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craig_day(Initiate)Initiate
24 July 2023

Hi All,

We have seen more cases with a taxpayers borrowed more fund for their invesment property (at settlement). For example, fund required at settement is $690,000.00, fund borrowed is $720,000.00. Tax payers declare they used the surplus fund ($30,000.00) to reimburse themself for the initial deposit of the property and wish to claim the interest charge of the whole $720,000.00. Question here is: is the interest charge of the surplus fund tax deductible? I think they may not be tax deductible, but i want to double check with the ATO.

Thanks in advance.

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611 views
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JoanATO(Community Support)Community Support
25 July 2023

Hello @craig_day,


The general rule when claiming interest expenses is if you take out a loan to buy a rental property, you can claim the interest charged on that loan, or a part of the interest, as a deduction.

 

But, the property must be rented, or available for rent, in the income year for which you claim a deduction. You can also find more information on our ‘Rental properties – interest expenses guide’ which outlines what you can and can’t claim on the loan.

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Most helpful reply

JoanATO(Community Support)Community Support
25 July 2023

Hello @craig_day,


The general rule when claiming interest expenses is if you take out a loan to buy a rental property, you can claim the interest charged on that loan, or a part of the interest, as a deduction.

 

But, the property must be rented, or available for rent, in the income year for which you claim a deduction. You can also find more information on our ‘Rental properties – interest expenses guide’ which outlines what you can and can’t claim on the loan.

craig_day(Initiate)Initiate
27 July 2023

Hi JoanATO,


Thank you very much for getting back to me. The interest expense guide does not really answer our question here. We do understand the loan for investment purpose part. Our case seems to be a little different. Owner paid out of their own funds for the initial deposit of the investment property and they later on reimbursed themself by over borrowing the investment property loan. This is not mentioned in the interest guide.

AriATO(Community Support)Community Support
28 July 2023

Hi @craig_day


When you look at the purpose of the borrowings. A portion went towards buying an investment property, that produces income when rented. The other portion was used to "payback" the owners. This isn't producing income as such sounds more like a private expense.

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is interest on surplus borrow fund of an invesment property loan tax deductible | ATO Community