Did you know? You can claim interest on your construction loan during construction…

Did you know? You can claim interest on your construction loan during construction…

If you’re a property investor, you’ll want to pay close attention to a little-known update from the Australian Taxation Office (ATO). Tax ruling TR 2023/03 significantly changes how you can claim interest on construction loans.

The Basics

The interest on construction loans has historically been added to the Cost Base for Capital Gains Tax (CGT). However, under the ATO ruling, this interest can be claimed as a tax deduction instead. This means you may no longer need to wait until the sale of the property to benefit.

Key Points From TR 2023/03

According to the ruling, the ATO does not consider the costs of repairing, renovating, or constructing a structure on land — including interest and borrowing costs — to be expenses related to simply holding vacant land. This distinction is crucial because it allows for immediate tax deductions.

To break it down:

• If you have a construction loan for a property you plan to rent out, you can claim the interest on that loan as a tax deduction, even if the property is not yet producing any income.
• The usual conditions for deductibility must still be met, including keeping accurate records and ensuring your loan is directly linked to the construction of the rental property.

What This Means For Investors

For property investors, this ruling offers a fantastic opportunity to reduce taxable income sooner. Instead of waiting for a potential CGT event (like selling the property), you could benefit from these deductions during the construction phase.

This could be a great way to manage cash flow, especially if you’re in the middle of a building project and looking for ways to maximise tax efficiency.

How We Can Help

At Your Future Strategy, we’re here to help you navigate these tax changes and make the most of your property investments wherever possible. If you have an active construction loan or are considering building a rental property, please reach out to us as soon as possible so we can review your current strategy, ensuring you’re taking full advantage of these deductions.

For personalised advice on this tax ruling and how it impacts your financial situation, contact our team today.

This post contains general advice and does not take into account your financial situation, objectives or needs. Before acting on this general advice you should consider if it is appropriate for you and your situation. We recommend that you obtain financial, taxation and legal advice before making any financial decision. Past performance is not a reliable indicator of future performance.

You should consider all factors and risks before making a decision. Please refer to our Financial Services Guide (FSG) for more information.