ATO Interpretative Decision
ATO ID 2001/304 (Withdrawn)
Fringe Benefits Tax
Fringe Benefits Tax: 'Otherwise deductible rule'-
This ATO ID is withdrawn because it contains a view in respect of a provision of the Fringe Benefits Tax Assessment Act 1986 that does not apply after 30 June 2008. Despite its withdrawal, this ATO ID continues to be a precedential ATO view in respect of decisions up to and including, 30 June 2008.This document has changed over time. View its history.
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Whether the 'otherwise deductible rule' pursuant to paragraph 19(1)(b) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) applies to reduce the taxable value of a loan fringe benefit in a situation where, the taxpayer used the loan to participate in an 'employee share acquisition scheme' upon which the taxpayer derives foreign source dividend income and in the year of the participation of the scheme, assessable income under section 139B of the Income Tax Assessment Act 1936 (ITAA 1936).
Decision
No. The 'otherwise deductible rule' pursuant to paragraph 19(1)(b) of the FBTAA does not apply to reduce the taxable value of a loan fringe benefit in a situation where, the taxpayer used the loan to participate in an 'employee share acquisition scheme' upon which the taxpayer derives foreign source dividend income and in the year of the participation of the scheme, assessable income under section 139B of the ITAA 1936.
Facts
The employees are participating in an "employee share acquisition scheme" under Division 13A of the ITAA 1936.
The employees will derive foreign sourced dividends from the scheme.
The employees will also derive only in the year of participation of the scheme, assessable income under section 139B of the (ITAA 1936).
Reasons for Decision
Paragraph 19(1)(b) of the FBTAA does not allow a reduction in the taxable value of a loan fringe benefit under the "otherwise deductible rule" where the interest expense is incurred in deriving foreign source dividend income.
Also in paragraph 9 of Taxation Ruling IT 2606, the Commissioner states that '...interest on money borrowed to acquire shares will be deductible under the first limb of subsection 51(1) where it is expected that the dividends or other assessable income will be derived from the investment'. The concept of matching deductions against income is embodied in Taxation Ruling IT 2606 and carries through to fringe benefits tax for foreign source income and foreign source deductions.
In this situation, the interest on the loan fringe benefit was not incurred in gaining or producing the discount (assessable income under section 139B of the ITAA 1936), as the discount bears no relationship at all to the share investment. The discount is something that Parliament specified as income in a particular situation. Apart from that artificial connection, the discount has no relevance to the share investment.
Therefore, the 'otherwise deductible rule' will not reduce the taxable value of a loan fringe benefit where, the taxpayer used the loan to participate in an 'employee share acquisition scheme' upon which the taxpayer derives assessable income under section 139B of the ITAA 1936.
Date of decision: 27 July 2000
Legislative References:
Fringe Benefits Tax Assessment Act 1986
Paragraph 19(1)(b)
Subsection 51(1)
Division 13A
Section 139B
Related Public Rulings (including Determinations)
IT 2606
Keywords
Fringe Benefits Tax
Loan Fringe Benefit
Reduction In Taxable Value
Otherwise Deductible Rule
Employee Share Acquisition Scheme
Foreign Income Deduction
Interest Deductions
ISSN: 1445-2782
| Date: | Version: | |
| 27 July 2000 | Original statement | |
| You are here | 19 October 2015 | Archived |