| Disclaimer This edited version has been archived due to the length of time since original publication.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: 1051301156704
Disclaimer
You cannot rely on this edited version in your tax affairs. You can only rely on the advice that we have given to you or to someone acting on your behalf.
The advice in the Register has been edited and may not contain all the factual details relevant to each decision. Do not use the Register to predict ATO policy or decisions.
Date of advice: 30 October 2017
Ruling
Subject: Interest deduction
Question
Are you entitled to claim a portion of the interest of a loan relating to your former farming business?
Answer
Yes
This ruling applies for the following period(s)
Year ended 30 June 2017
The scheme commences on
1 July 2016
Relevant facts and circumstances
You and your spouse purchased a property with a view to generating income.
The property was not successful and you then decided to lease out the property which you later sold.
The property was sold at a loss and the debt was not fully paid out.
You transferred the unpaid debt to your home loan which is being repaid in instalments.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1
Reasons for decision
Section 8-1 of the Income Tax Assessment Act 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature.
At the time the borrowing was taken out there was clearly a sufficient nexus or connection between the assessable income and the interest incurred on the borrowing. This is because the borrowed funds were used to purchase an asset that produced assessable income. However, what needs to be considered is whether the relevant nexus was subsequently broken, either when the asset was sold or when the loan was refinanced.
In your situation, you borrowed money to purchase a business, the business has now ceased and you have sold the business at a loss. The proceeds from the sale were not enough to pay out the loan and you transferred the unpaid debt to your home loan which is being repaid in instalments.
It is accepted that the relevant nexus between the interest expense and the assessable income earned previously from the asset is not broken. Accordingly, you are entitled to a deduction for the interest on the residual borrowings relating to the business.