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Edited version of your private ruling
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Ruling
Subject: Interest expense
Question
Are you entitled to a deduction for interest and bank fees charged to your investment loans?
Answer
Yes.
This ruling applies for the following periods:
Year ended 30 June 2011
Year ended 30 June 2012
The scheme commences on:
1 July 2010
Relevant facts and circumstances
You have investment loans with a financial institution.
You are part of a class against an organisation.
You have ceased making repayments to your investment loans.
Interest and bank fees are still being charged to these accounts.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 8-1.
Reasons for decision
Section 8-1 of the ITAA 1997 allows a deduction for losses or outgoings incurred in earning assessable income. No deduction is allowable where the loss or outgoing is of a capital, private or domestic nature.
Interest on loans and bank fees are generally deductible where the borrowed funds have been used to earn assessable income.
Taxation Ruling TR 97/7 explains the meaning of 'incurred' for the purposes of section 8-1 of the ITAA 1997. It sets out general rules, settled by case law, that assist in most cases in determining whether and when a loss or outgoing has been incurred. The key principles are:
· incurred does not equate to having been paid
· the taxpayer must be definitely committed to the outgoing in the year of income. That is, it must be a presently existing liability to pay a pecuniary sum
· it is not a presently existing liability if it is contingent, and
· incurred does not include amounts which are merely impending, threatened or expected.
Whether there is a presently existing pecuniary liability in a year of income requires consideration of the facts of each case, having regard to the source of the liability.
In your case, you have investment loans. You have ceased making repayments to these loans as you are part of a class action against the organisation. Interest and bank fees are still being charged to your accounts.
Having regards to your full circumstances and the above principles, it is considered that the interest and bank fees have been incurred for the purposes of section 8-1 of the ITAA 1997. Therefore, you are entitled to a deduction for interest and bank fees charged to your investment loans.
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