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Edited version of private advice
Authorisation Number: 1052292035251
Date of advice: 22 August 2024
Ruling
Subject: Trust - trustee loans - deductions
Question
Are you entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for the interest expenses incurred on your loan?
Answer
Yes. Taxation Ruling TR 95/25 Income tax: deductions for interest under section 8-1 of the Income Tax Assessment Act 1997 following FC of T v. Roberts; FC of T v. Smith (TR 95/25) provides the Commissioner's view regarding the deductibility of interest expenses. As outlined in TR 95/25, there must be a sufficient connection between the interest expense and the activities which produce assessable income. TR 95/25 specifies that to determine whether the associated interest expenses are deductible, it is necessary to examine the purpose of the borrowing and the use to which the borrowed funds are put.
In your case, the borrowed funds were used for the purpose of gaining or producing your assessable income. The fact that money was available to repay the loan but was used for other purposes does not change the use to which the borrowed funds were put. Accordingly, you are entitled to a deduction under section 8-1 of the ITAA 1997 for the interest expenses incurred on the loan.
This ruling applies for the following period:
Year ended 30 June 2023
The scheme commenced on:
1 July 2022
Relevant facts and circumstances
You run a business.
You borrowed money from the bank, which was used for working capital, to purchase business equipment and to acquire goodwill.
You distributed more to the beneficiaries than their present entitlement.
The additional amounts distributed have been treated as loans to the beneficiaries.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 8-1