Gearing/interest costs

As noted earlier, most properties are purchased with borrowed funds. The interest on the borrowed amount, that is, the cost of borrowing, is considered by the ATO as a cost associated with producing income for the borrower. On this basis, the amount of interest paid is classified as a deduction.

Be aware that the interest costs of a loan for an investment property may only be claimed if the property is earning an income. Therefore, holiday homes, properties purchased for family benefit and land do not qualify, as they do not earn an income. If there is a vacancy, however, these costs can be claimed, as long as the property has been available to lease during its vacant period.

Where investment properties are partially used for personal use, for example a holiday home, which is rented in holidays but used by the family at times, a pro-rata claim only for the period it is available for lease can be made.