Private ruling: Deductibility of loan interest
Date of advice: 6 November 2015
Published: November 2015
Ruling period: Year ended 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Question and answer | Is the trust entitled to claim the interest on a loan taken over from person A as a deduction? | Yes.

Relevant facts and circumstances: The business was rolled into the trust after a marriage break down between the former partners of the business. The trust has taken over the loan and repayments relating to the business from Person A as part of taking over the business.

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

Reasons for decision: Summary: Section 8-1 of the ITAA 1997 allows a deduction for all losses or outgoings to the extent to which they are incurred in gaining or producing assessable income, or are necessarily incurred in carrying on a business for that purpose. However, where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income they will not be deductible (subsection 8-1(2) of the ITAA 1997). The loan was taken over by the trust when it acquired the business from a former partner in the business as part of the transfer, therefore the loan was used to finance the acquisition of the income producing business and it the interest incurred is not capital or of a private or domestic nature. The Interest on the loan in relation to the business can be claimed as a deduction by the trust.