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Edited version of private ruling
Authorisation Number: 1011712304352
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Ruling
Subject: Deduction - Loan principal
Question
Are you entitled to a deduction as a business expense for the principal amount of the loan which was obtained to pay your outstanding Pay As You Earn (PAYE) withholding tax instalments?
Answer
No.
This ruling applies for the following period
Year ended 30 June 2010
The scheme commenced on
1 July 2009
Relevant facts
Several years ago you obtained a loan to pay your accumulated PAYE debt with the Australian Taxation Office.
You have paid the debt.
The business has claimed the interest component of the loan as a business cost.
The business is now in a position to begin reducing the principal borrowings of the loan.
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 all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income or necessarily incurred in carrying on a business to gain or produce assessable income except where the outgoings are of a capital, private or domestic nature.
The loan principal is an amount that is capital in nature and it follows that the repayment of the loan principal would also be capital in nature. As a deduction for an expense that is capital in nature is not allowable under section 8-1 of the ITAA 1997, you are not entitled to a deduction for the repayment of the loan principal.
Further, a deduction for the loan principal is not deductible under any other provision of the ITAA 1997 or any provision of the Income Tax Assessment Act 1936.
