Private ruling: Deductibility of interest expenses
Date of advice: 18 December 2018
Published: May 2019
Ruling period: Financial year ended 30 June 2019 | Financial year ended 30 June 2020 | Financial year ended 30 June 2021 | Financial year ended 30 June 2022
Date scheme commenced: 1 July 2018

Ruling: Q1: Are you entitled to deduct the interest expenses incurred on borrowings used to pay PAYG instalments and/or your year-end tax liability? | A1: Yes. The interest expenses are deductible, as it is accepted that the expense is incurred for the purpose of gaining or producing your assessable income, as detailed in Taxation Ruling TR 95/25 Income tax: deductions for interest under section 8-1 of the Income Tax Assessment Act 1997 following FC of T v. Roberts; FC of T v. Smith. Further information about interest expenses can be found by searching 'QC 31945' on ato.gov.au

Relevant facts and circumstances: You are specialist operating out of an entity at a number of locations. You pay a percentage of your income to the entity or use of the facilities. You are responsible for generating your own income as well as employing your staff. You generally have two administration staff on the payroll. You prepare your own financial books and lodge business activity statements. You are able to work at any location. You maintain all of your own insurances. Other than paying a facility fee to the entity, you do not receive any further benefits other than client referrals and the administration services provided. The entity also grants access to the equipment that is required in your work. You have equity in your main residence. You plan to borrow against the equity in your main residence in order to pay PAYG instalments and/or year-end tax liabilities in relation to your activities as a sole trader. You will incur an interest expense on the borrowings.

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