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Ruling
Subject: interest payable as guarantor
Question
Can you claim a deduction for interest paid in respect of a loan that you have provided a guarantee for when the borrower is unable to make the repayments?
Answer
No
This ruling applies for the following periods:
Year ended 30 June 2011
The scheme commenced on:
1 August 2008
Relevant facts and circumstances
Following advice received from a financial consultant your spouse borrowed a sum of money to invest. The value of the investment is now $0.
All investments were made in the name of your spouse.
The loan was at arms length.
You provided a guarantee for the loan owing by your spouse and are now making the monthly repayments on the loan.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1
Reasons for decision
Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for any loss or outgoing that is incurred in gaining or producing your assessable income unless the loss or outgoing is capital, private or domestic in nature.
All investments were made in the name of your spouse. As a consequence any income derived from the investment would have been derived by your spouse.
Since you stood to derive no assessable income from the investment any interest incurred by you under your obligation as guarantor of your spouse's loan is not deductible to you. Accordingly no deduction is permitted under section 8-1 of the ITAA 1997.