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Draft Taxation Determination

TD 94/D35 (Withdrawn)

Income tax: is interest deductible to a unit holder on borrowed funds used to acquire units in a trust where the distribution received includes amounts which are not assessable income?

  • Please note that the PDF version is the authorised version of this draft ruling.
    This document has been Withdrawn.

FOI status:

draft only - for comment

Preamble

Draft Taxation Determinations (TDs) present the preliminary, though considered, views of the ATO. Draft TDs may not be relied on; only final TDs are authoritative statements of the ATO.

1. If a unit trust, which has no net income for Division 6 purposes, distributes non-assessable income to a unit holder, that amount will be exempt income by virtue of the definition of exempt income in subsection 6(1) of the Income Tax Assessment Act 1936. The interest expense is not deductible as it fails to satisfy the conditions for deductibility set out in subsection 51(1).

2. If a unit trust distributes both assessable and non-assessable income, the interest expense is incurred for a dual purpose, i.e., the derivation of both assessable and non-assessable income. The interest expense is apportioned (Kidston Gold Mines v FC of T 91 ATC 4538) in the ratio of assessable distribution to total distribution to determine the allowable deduction (Adelaide Racing Club v FC of T (1964) 114 CLR 517 (1992) AAT Case 8229).

Example:

Distributions received by unitholder X in 1992 from the ABC Tourist Hotel Unit Trust totalled $10,000, comprising $8,000 from the net income of the trust and $2000 accounting income from the operation of Divisions 10C and 10D of Part 111. Unitholder X, who incurred interest expense in the year of $4,000 on funds borrowed to finance the purchase of the units, would receive a deduction of $3,600 under subsection 51(1), ie. the assessable proportion of the distribution is 80% ($8,000 / $10,000 * 100) so that the allowable deduction is 80% of $4,000.

Commissioner of Taxation
7/4/94

Not previously released in draft format

References


BO CAS AUD 013

ISSN 1038 - 8982

Related Rulings/Determinations:

IT 2684

Subject References:
deductions
interest
interest incurred in deriving non assessable income
unit trust distributions of accounting income

Legislative References:
ITAA 6(1)
ITAA 51(1)

Case References:
(1992) AAT Case 8229
24 ATR 1014


Case Z33
92 ATC 308

Adelaide Racing Club Inc. v FC of T
(1964) 114 CLR 517
9 AITR 404

Kidston Goldmines Ltd. Inc. v FC of T
(1991) 22 ATR 168
91 ATC 4538


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