On 1 January 2012, Daisy Chain, a resident passive investor, borrowed $900,000 (at 10% interest per annum) and invested the funds as follows:
1. $200,000 was used to acquire shares that pay unfranked dividends. $20,000 of interest was paid in advance on 1 January 2012 for the next 12 months.
2. $250,000 was used to refinance the outstanding loan on her investment property with another bank (interest incurred to 30 June 2012 was $12,500).
3. $50,000 to build a home office (interest incurred to 30 June 2012 was $2,500).
4. $400,000 to acquire some gold bullion which will be held for 10 years and then hopefully sold for a capital gain (interest incurred to 30 June 2012 was $20,000).Daisy Chain also paid $5,000 general interest charge (GIC) (incurred to 30 June 2012) to the Australian Taxation Office.
Required
Identify whether the interest is deductible in the year ended 30 June 2012 in relation to the items above. Quote relevant legislation (apart from s. 8-1 ITAA 1997), cases or tax rulings for each item and very briefly explain your answer (a few words will suffice).