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The deductibility of the interest expenses after disposal of the vehicle will depend upon whether the borrowed money is still used for income-producing purposes.

After the vehicle is sold, the taxpayer may use the money received from the sale to gain or produce assessable income. In that case, the interest paid by the taxpayer is still deductible. However, if the money is used for some other purpose, such as a private purpose or to gain or produce exempt income, the interest will not be deductible under subsection 51(1). Example: Jerry has been employed for some years by PDQ Building Company as a plumber. In 1990 Jerry borrowed $30,000 to buy a four-wheel-drive vehicle which he used wholly in the course of his employment. In June 1994 PDQ transfers Jerry to its building maintenance division, where he no longer needs the vehicle to perform his duties. Jerry sells the vehicle on 20 June 1994, but does not use the money he receives to repay the balance of $15,000 then outstanding under the loan contract. (a) If Jerry sells the vehicle for $15,000 and uses the money to buy shares in a company that pays dividends, the borrowed money continues to be used to gain or produce assessable income and the interest expenses are still deductible. (b) If he sells the vehicle for $15,000 and uses the money to discharge a mortgage over a residential property that is not used for income-producing purposes, the borrowed money is now applied for private or domestic purposes. Tax deductions are not allowable for interest incurred on the loan after 20 June 1994. Note: The Notice of Partial Withdrawal that issued on 29 June 2001 changed this Determination with effect from 29 June 2001.