Is the interest on protected equity loans tax deductible?

There has been much debate about the deductibility of the interest payments on capital protected loans because of the difficulty in distinguishing between the capital protection component and pure loan interest component of the payments. Only the interest component is tax deductible. The amount of interest available for deduction will be the lower of:

  • the amount determined by the Reserve Bank's Indicator Rate for personal unsecured loans
  • the amount determined on a sliding scale depending on the term of the product (85 per cent for five years, 82.5 per cent for four years, 80 per cent for three years, 72.5 per cent for two years and 60 per cent for one year)