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Edited version of your private ruling
Authorisation Number: 1012607726365
Ruling
Subject: Interest deductions
Question
Are you entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for interest incurred on monies borrowed to pay your income tax and PAYG Instalments?
Answer
Yes.
This ruling applies for the following periods:
Year ended 30 June 2013
Year ended 30 June 2014
Year ended 30 June 2015
Year ended 30 June 2016
Year ended 30 June 2017
The scheme commences on:
1 July 2012
Relevant facts and circumstances
You are a medical practitioner with your own ABN and GST registration.
You have a contract with a hospital to work on a non-exclusive basis as a medical practitioner.
You are paid by the hospital based on the number of patients treated.
You have no claim on the hospital for entitlements such as sick leave, annual leave or long service leave.
The hospital staff make the patient appointments. The consultations occur at the hospital premises using the hospital's equipment.
You are required to have your own medical indemnity insurance policy.
You established a Line of Credit facility for the sole purpose of paying your income tax and PAYG Instalments.
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.
Taxation Ruling IT 2582 states that the interest incurred on moneys borrowed to pay income tax will be deductible provided that the taxpayer is carrying on a business for the purpose of gaining or producing assessable income and, in connection with the carrying on of that business; the taxpayer borrows money to pay income tax.
While IT 2582 has a reference to companies carrying on a business, ATO Interpretative Decision ATO ID 2006/269 states that the same approach is applicable to an individual carrying on a business as a sole trader.
Based on the above, it is considered that you are entitled to a deduction under section 8-1 of the ITAA 1997 for the interest incurred on moneys borrowed to meet your income tax and PAYG instalment tax obligations in connection with your business activity.