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Edited version of your written advice
Authorisation Number: 5010048592461
Date of advice: 16 February 2018
Ruling
Subject: Business – expenses – after cessation
Question
Are you entitled to a deduction for a portion of the interest expense on your loan after the cessation of your business where no funds are available to repay the loan?
Answer
Yes
The portion of interest expenses relating to the production of business income will be allowed as a deduction under section 8-1 of Income Tax Assessment Act 1997. The Commissioner’s view on the deductibility of interest expenses following the cessation of the relevant income producing activity is considered in Taxation Ruling TR 2004/4.
This ruling applies for the following periods
Year ending 30 June 2018
Year ending 30 June 2019
Year ending 30 June 2020
Year ending 30 June 2021
Year ending 30 June 2022
The scheme commenced on
1 July 2017
Relevant facts
You opened a business as a sole trader and borrowed the funds to do so.
The loan was an extension of your home loan.
You subsequently borrowed further funds to finance the business.
The loan moneys were used to purchase the business and for refurbishment.
The business later closed, and you are now working for a salary.
The business assets were sold, which left you with an outstanding lease payment on the premises, as well as business bills such as solicitor fees and mortgage.
A large debt from your moneys borrowed for the business was outstanding after using the sale proceeds to pay outstanding debts.
The loan terminates in several years.
You regularly repay the loan each month with principal and interest repayments.
You do not have sufficient funds to pay out the business loan.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1