Author: ZebN(Champion)Champion 9 July 2024
Hello. Its bedtime now however I guess the ATO may have a public Taxation Ruling or ATO ID (Interpretative Decision) on this specific matter.
Basic tax principles (section 8-1 of the ITAA 1997) say you can only claim a deduction to the extent that it is incurred in gaining or producing your assessable income (which includes rental income); and that it is not of a capital nature.
My impression is refinancing your Property B loan against Property A would be for the purpose of acquiring Property B. In other words, the refinancing does not appear to be for the purpose of producing assessable (rental) income from Property A. In other words, the interest expense appears to be of a capital nature and therefore non-deductible.
You can search the ATO Legal Data Base (use search words such as "rental property" and "refinancing") or hopefully I remember to do so tomorrow. At this moment, I doubt the interest expense will be deductible.
Note: I am not a tax professional and my employment in tax related matters ceased many years ago.
Thank you, I was afraid this was the case.
There are a lot of cases where people refinance their loans, but i had not seen anyone ask about interest tax deductions when they own theIr investment outright, probably because they have no interest to deduct. Or most people who rent their properties don't seem to own their houses outright and therefore can deduct the interest.
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