ATO Rulings and Determinations
Interest deductibility
15.07.2009
A final determination has been issued to the effect that interest on a loan used to settle moneys on trust to benefit the borrower and others cannot be deducted in full as a general deduction under sec 8-1 ITAA 1997 (TD 2009/17). Points made in the determination are:
- the taxpayer’s interest expense can only be deducated to the extent to which the taxpayer has used the borrowed moneys to gain or produce assessable income of the taxpayer. The interest will not be deductible to the extent that the taxpayer has used the borrowed moneys for the purpose of benefiting persons other than the taxpayer;
- the conclusion that the taxpayer has used the borrowed moneys to benefit others will usually follow objectively from the terms of the trust. This will be the case, whether the moneys are settled on the trust upon its creation or at a later time;
- likewise, the terms of the trust will usually provide an objective basis for characterising whether the taxpayer has used the borrowed moneys for the purpose of gaining or producing their assessable income;
- where the terms of the trust indicate that the borrowed moneys have been used to benefit both the taxpayer and others, an apportionment calculation will be required to determine the taxpayer’s interest deduction; and
- the interest expense is not deductible at all where the terms of the trust are such that no connection is perceived between the interest outgoing and the taxpayer’s assessable income, or where sec 51AAA ITAA 1936 applies.
