Is the interest deductible

[Cedarwood]

Hello forum members,

Would like your opinion about the following example please:

Investment Property A:
Loan 1: 227500
Loan 2: 55000 (split to purchase Property B)

Investment Property B: (Value 390000)
Loan 3: 221000

If I were to refinance the loan on Property B, and borrow an additional 55000 to pay off loan 2, would the interest on 55000 be deductible?

Is there any ruling that covers the above scenario?

Thank you

 

[Terry_w]

A refinance doesn't change deductibility of interest so if it was originally deductible it should still be.

Yes this is covered in one of the TRs try TR2000/12 from memory.

 

[Cedarwood]

Thank you Terry,
Is this the right paragraph?

3.The deductibility of interest is typically determined through an examination of the purpose of the borrowing and the use to which the borrowed funds are put.

Ruling TR2000/17

Regards,

 

[Terry_w]

Not the one I was thinking of, but see TR95/25

42. Interest on a new loan will be deductible if the new loan is used to repay an existing loan which, at the time of the second borrowing, was being used in an assessable income producing activity or used in a business activity which is directed to the production of assessable income ( Roberts and Smith ATC at 4388; ATR at 504).

 

[Cedarwood]

Thank you for your advice Terry