Private ruling: The deductibility of interest paid on a loan between related entities
Date of advice: 27 September 2021
Published: December 2021
Ruling period: Year ended 30 June XXXX
Date scheme commenced: 1 July XXXX

Ruling: Q1: Is the interest paid on a loan between the trust and the related company tax deductible to the trust where the loaned monies are used in the working capital of a trading business partnership? | A1: Yes. The interest is deductible provided the loan meets the criteria for minimum interest rate and maximum term not treated as dividends under section 109N of the ITAA 1936.

Relevant facts and circumstances: The trust and the company are partners in a trading business partnership. The partnership does not distribute in cash 100% of profits to the partners, as it's required to keep the money in the partnership account to fund the working capital and growth of the business. During the XXXX income year, the trust distributed 50% of the accounting profit to the company beneficiary. As the trust didn't have the cash to pay out this distribution to the company, the Unpaid Present Entitlement (UPE) was converted into a Division 7A loan agreement. The trust made the first principal and interest loan repayment in the XXXX income year to the company.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 8-1. | Income Tax Assessment Act Section 109L. | Income Tax Assessment Act Section 109N.


This ruling applies for the following period: