DH 7Grandparented residential interest

1. Grandparented residential interest means interest, for a person and a grandparented transitional loan, that is,—

2. interest for the loan’s principal to the extent to which the interest is incurred for disallowed residential property:
3. if the loan (the underlying loan) is for both disallowed residential property and property that is allowed property described in subsection (3)(b), and the portion incurred for disallowed residential property cannot reasonably be determined, the portion of underlying interest calculated by reference to a notional loan principal (the notional loan principal) that the person is treated as having used to acquire, on 26 March 2021, the disallowed residential property to which the underlying loan relates. The initial notional loan principal is calculated using the formula in subsection (2) and the treatment of repayments is provided in subsection (4).

4. For the purpose of subsection (1)(b), the notional loan principal is calculated using the following formula, treating a negative amount as zero:

   $outstanding\; borrowings\; -\; allowed\; property.$

   Where:

5. In the formula in subsection (2),—

6. outstanding borrowings is the principal of the underlying loan, determined as at 26 March 2021, to the extent to which it is for both disallowed residential property and property that is allowed property described in paragraph (b):
7. allowed property is the total of—
   1. the value of the person’s assets, determined as at 26 March 2021, that is not disallowed residential property, but ignoring assets that are not used in deriving assessable income; and
   2. to the extent to which the person’s assets are disallowed residential property described in section DH 4, the value of those assets, determined as at 26 March 2021.

8. A repayment of the underlying loan is applied against the notional loan principal to reduce it, to a minimum of zero, unless the source of the repayment is the disposal of allowed property described in subsection (3)(b). If the source of the repayment is the disposal of allowed property, then only the amount of the repayment that is in excess of the 26 March 2021 value of the allowed property is applied against the notional loan principal to reduce it, to a minimum of zero.