Private ruling: Interest on loan
Published: April 2014
Ruling period: Year ending 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Are you entitled to claim a deduction for interest on a loan where the borrowed funds were used to purchase units in a unit trust? | A1: Yes.

Relevant facts and circumstances: As part of a court order you were required to purchase units in a unit trust. You borrowed money to purchase the units and incur interest expenses on the loan. The trust distributes income to you.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 8-1

Reasons for decision: Summary: Section 8-1 of the Income Tax Assessment Act 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income or a provision of the taxation legislation excludes it. Taxation Ruling TR 95/25 states that the deductibility of interest is dependent upon how the borrowed funds are used. If the borrowed funds are used to purchase an income producing asset the associated interest expenses will be deductible. You have borrowed funds to purchase the units in the trust. As the units provide you with income in the form of trust distributions, the interest expense incurred on the money borrowed to purchase the units is a deductible expense. The fact that the units were purchased due to a court order does not affect the deductibility of the interest expense.