Kate borrowed $200,000 from the local bank on 30 June 2017 for a period of five years, at an interest rate of 7% pa. Interest is to be paid annually in arrears on 30 June (first payment being due on 30 June 2019). The purpose of the loan is to invest $100,000 in shares yielding very good dividends and to on-lend $100,000 to her brother Nicholas, at an interest rate of 2% pa.

What amount can Kate claim as her interest expense in the current year, assuming that she paid $14,000 to the local bank on 30 June 2019? Explain your answer and where relevant provide legislative and/ or case authority. (Australian Tax Law - Deductions)