Private ruling: Deductibility of interest on a loan on-lent to a family trust
Date of advice: 7 June 2021
Published: August 2021
Ruling period: Year ending 1 July 20XX | Year ending 1 July 20XX | Year ending 1 July 20XX | Year ending 1 July 20XX | Year ending 1 July 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q2: Will the interest expense on the loan from individuals to the Trustee for the Trust be deductible for the Trust under section 8-1 of the Income Tax Assessment Act (ITAA 1997)? Answer Yes. Taxation Ruling TR 95/25 Income tax: deductions for interest under section 8-1 of the ITAA 1997 following FC of T v Roberts; FC of T v Smith provides the Commissioner's view regarding the deductibility of interest expenses. As outlined in TR 95/25, there must be a sufficient connection between the interest expense and the activities which produce assessable income.

Relevant facts and circumstances: Person A is the Trustee of The Trust Person A is a beneficiary of The Trust. Person B is a beneficiary of The Trust. Person A and Person B have borrowed an amount of money from a financial services company using their private home as security for the loan (Bank Loan 1) Person A and Person B intend to loan the funds from Bank Loan 1 to The Trust under a proposed loan agreement. Person A also has a loan on an investment property where a portion of it is unused (Bank Loan 2). Person A intends to loan the funds from Bank Loan 2 to The Trust under a proposed loan agreement. Person A, as Trustee of The Trustee, will use the on-lent funds (being Bank Loan 1 and Bank Loan 2) to acquire shares which pay dividends.

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


Question 1: Is written documentation, such as a loan agreement, required to substantiate interest deductions? | Yes. For more information on interest deductions, please visit our website ato.gov.au and enter quick code "QC 19052" in the search area at the top of the page. | This ruling applies for the following periods: