| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of your written advice
Authorisation Number: 1051198878313
Date of advice: 3 March 2017
Ruling
Subject: Interest Deduction under section 8-1
Facts
● It is proposed that the entity will be incorporated as a proprietary limited company. The entity is currently not incorporated.
● The entity proposes to acquire shares in a private company that carries on a business of a professional practice.
● It is proposed that the entity will borrow the funds to acquire the shares in the private company from a retail bank or a private retail lender to fund the upfront payment.
● It is proposed that the entity will derive dividends from the private company's business activities.
Summary
The interest expense incurred by the taxpayer on its borrowing to acquire the shares of a company carrying on the business of a professional practice will not be an allowable deduction under s8-1 of ITAA 1997 due to uncertainty regarding the ability to undertake the arrangement as proposed.
Detailed reasoning
In order for a deduction to be claimed by the entity under section 8-1 of the ITAA 1997 the expense must be incurred in gaining or producing assessable income or necessarily incurred in carrying on a business in gaining or producing assessable income.
Even if, under the arrangement as proposed, assessable income will be generated for the entity, we do not accept that this is sufficient to answer this question because we do not accept that the arrangement can be undertaken as proposed as the arrangement would not satisfy taxation rulings published on the issue.