Private ruling: Interest income and deductions
Published: March 2013
Ruling period: Year ending 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: 1. Would interest received by you in relation to a loan made to a superannuation fund be assessable income? | A2: Yes.


Relevant legislative provisions: Income Tax Assessment Act 1997 - section 6-5 | Income Tax Assessment Act 1997 - section 8-1

Reasons for decision: Summary: Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year. Interest income is regarded as ordinary income and therefore assessable under subsection 6-5(2) of the ITAA 1997. In your case, you will receive interest payments on a loan made to a third party. The interest you receive will be considered ordinary income and should be included in your assessable income. Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 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. Interest expenses are generally deductible under section 8-1 of the ITAA 1997 to the extent that it is incurred in relation to funds used for an income producing purpose. As stated above, the interest you will receive from the third party will be assessable as ordinary income. Therefore, the expenses you incur in producing that income will be deductible.

2. Would you be entitled to a deduction for the interest incurred on the loan taken out to on lend to the superannuation fund? | Relevant facts: You have a loan in place with a Bank and are able to take advantage of a redraw facility. | The redraw facility would provide you with sufficient funds to on lend to a third party. | The third party would pay you interest on the loan. | You would in turn incur interest on the loan in your name.