Tax deductibility on interest for loan to invest in pre dividend companies.

[#1]

Hi ATO community
I wanted to ask about tax deduction for interested on money borrowed to buy shares and other related investments.

From the article below, I understand that I can claim deduction on money borrow for income-producing purposes.
https://www.ato.gov.au/Individuals/Income-and-deductions/Deductions-you-can-claim/Other-deductions/I...

However, what is not very clear is how does ATO asset an investment vehicle is appropriately used to produce income. I know that for company shares and managed fund units, the income comes from dividends and distributions. I also know that participating in schemes that forgo dividends in exchange for bonus shares will make the interest payment not tax-deductible. Now, my question is: If I borrow to invest in a company that is reasonably expected to pay dividends in upcoming years, but doesn't pay a dividend this year, will the interest payment on the loan borrowed to invest still tax deductible? If not, does it mean interest payment on loan borrowed to invest in companies that could not pay dividends this year due to Covid-19 also not tax-deductible?

Thank you.

[#2 · Accepted solution]

Hi @rbaqe 

Thank you for your post. We do appreciate your engagement to want to get it right. As to your question the information is correct. If you have a loan for an income producing purpose then we would expect you will be able to claim a deduction on the interest paid. That said however where you have concerns with the irregular nature of the purchase and understanably so where the outlay is a large one we would always suggest you start with Early engagement. It offers peace of mind so you can be sure of the ATO's view concerning the venture. I hope that helps.

All the best

MarkATO