Draft Taxation Determination
TD 2000/D2
Income tax: are partners entitled to a deduction under section 8-1 for interest on borrowings to pay personal income tax?
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Please note that the PDF version is the authorised version of this draft ruling.This document has been finalised by TD 2000/24.
FOI status:
draft only - for commentPreamble
| Draft Taxation Determinations (DTDs) present the preliminary, though considered, views of the Australian Taxation Office. DTDs should not be relied on; only final Taxation Determinations represent authoritative statements by the Australian Taxation Office. |
1. No. For interest to be deductible under section 8-1 of the Income Tax Assessment Act 1997 it must be either incurred in gaining or producing assessable income or necessarily incurred in carrying on a business for the purpose of gaining or producing such income.
2. The personal expenses of an individual partner are not incurred in the carrying on of a partnership business. Any borrowing by the individual partner on account of income tax relates to that partner's personal income tax obligation and lacks any direct connection with the business or income activities of the partnership. See Case 14/98 98 ATC 201; AAT Case 13,135 (1998) 39 ATR 1105.
3. Nor can it be said that the interest expense is incurred in deriving assessable income. A payment of income tax plays no part in the derivation of assessable income (see Case V48 88 ATC 380; AAT Case 4178 (1998) 19 ATR 3334). Nor does the fact that it may obviate the need to withdraw partnership equity give it the requisite essential character (see FC of T v. Munro (1926) 38 CLR 153).
Note:
4. Taxation Ruling TR 95/25 considers the deductibility of interest on funds borrowed by a partnership to refinance partnership equity. A rigid tracing approach to the application of those distributed funds e.g., where the funds have been applied by an individual partner to the payment of income tax, does not determine the question of deductibility of interest on any borrowing to the partnership.
Your comment
5. We invite you to comment on this Draft Taxation Determination. We are allowing 4 weeks for comments before we finalise the Determination. If you want your comments considered, please provide them to us within this period.
| Comments by Date: | 29 March 2000 |
| Contact officer details have been removed following publication of the final ruling. | |
Commissioner of Taxation
1 March 2000
References
ATO references:
NO T2000/2323
BO 89/9235-5
Related Rulings/Determinations:
TR 95/25
Legislative References:
ITAA97 8-1
Case References:
Case 14/98
98 ATC 201
AATC Case 13,135
(1998) 39 ATR 1105
Case 48
88 ATC 380
AAT Case 4178
(1998) 39 ATR 3334
FC of T v. Munro
(1926) 38 CLR 153