Hot Issues
spacer
FBT Reminder – Odometer Reading
spacer
ATO’s debts on hold campaign prompts new IGTO guidance
spacer
A comprehensive collection of small business benchmarks
spacer
The 2025 Financial Year tax & super changes you need to know!
spacer
Underperforming employees: When can you terminate?
spacer
A comprehensive list of guides to industry specific tax deductions.
spacer
‘Renewed concerns’ about economy sees consumer sentiment dip: Westpac
spacer
Oldest Buildings in the World.
spacer
Small businesses may ‘collapse under strain of payday super’, IPA warns
spacer
ATO’s hands tied with scrapping on-hold debts, expert says
spacer
What Drives Your Business Growth and Profits?
spacer
Australian Taxation Office (ATO) shifting to firmer debt collection activity
spacer
Why employee v contractor comes down to fine print
spacer
Sharing economy reporting regime for platform operators
spacer
Countries producing the most solar power by gigawatt hours
spacer
Illegal access nets $637 million
spacer
Accessing superannuation benefits.
spacer
Does your business have a company Power of Attorney?
spacer
Labor tweaks stage 3 tax cuts to make room for ‘middle Australia’
spacer
GrantConnect
spacer
2 in 3 SMEs benefit from instant asset write-off, survey reveals
spacer
Updated guidance on R&D claims
spacer
Do you know how to recover debts?
spacer
Wheat Production by Country
spacer
Types of small business benchmarks
spacer
What is a Commercial Lease?
spacer
ATO warns advisers against suspect R&D tax claims
spacer
The year of workplace law upheaval
spacer
How to Resolve Invoice Payment Disputes
spacer
Raft of revenue tweaks in MYEFO to raise millions
spacer
Vimeo test
Article archive
spacer
Quarter 1 January - March 2024
spacer
Quarter 4 October - December 2023
spacer
Quarter 3 July - September 2023
spacer
Quarter 2 April - June 2023
spacer
Quarter 1 January - March 2023
spacer
Quarter 4 October - December 2022
spacer
Quarter 3 July - September 2022
spacer
Quarter 2 April - June 2022
spacer
Quarter 1 January - March 2022
spacer
Quarter 4 October - December 2021
spacer
Quarter 3 July - September 2021
spacer
Quarter 2 April - June 2021
spacer
Quarter 1 January - March 2021
spacer
Quarter 4 October - December 2020
spacer
Quarter 3 July - September 2020
spacer
Quarter 2 April - June 2020
spacer
Quarter 1 January - March 2020
spacer
Quarter 4 October - December 2019
spacer
Quarter 3 July - September 2019
spacer
Quarter 2 April - June 2019
spacer
Quarter 1 January - March 2019
spacer
Quarter 4 October - December 2018
spacer
Quarter 3 July - September 2018
spacer
Quarter 2 April - June 2018
spacer
Quarter 1 January - March 2018
spacer
Quarter 4 October - December 2017
spacer
Quarter 3 July - September 2017
spacer
Quarter 2 April - June 2017
spacer
Quarter 1 January - March 2017
spacer
Quarter 4 October - December 2016
spacer
Quarter 3 July - September 2016
spacer
Quarter 2 April - June 2016
spacer
Quarter 1 January - March 2016
spacer
Quarter 4 October - December 2015
spacer
Quarter 3 July - September 2015
spacer
Quarter 2 April - June 2015
spacer
Quarter 1 January - March 2015
spacer
Quarter 4 October - December 2014
Quarter 1 of, 2017 archive
spacer
Impending GST changes good news for SMEs
spacer
SMSF related-party borrowing arrangements
spacer
Primary Producer Income Tax Averaging
spacer
Active vs passive assets and the small business CGT concession
spacer
ATO issues further taxpayer alerts on key focus areas
spacer
Borrowed money to pay a business tax debt? Is the interest deductible?
spacer
Online Selling
spacer
The dangers of income splitting
spacer
Clients failing on depreciation front - property investment
spacer
Home office deductions: What substantiation will the ATO accept?
spacer
ATO advises accountants on client data swoop
spacer
ATO issues stern reminder on new backpacker tax
spacer
Debt Recovery
spacer
Government takes next step in tax cheats crackdown
spacer
Car salary packages and the deductibility of after-tax running costs
spacer
Choosing an Executor
spacer
ATO fires warning shots at cash economy exploiters
spacer
Getting a tax valuation from the ATO
spacer
5 tips to get home office deductions right
Borrowed money to pay a business tax debt? Is the interest deductible?

 

It was about 1990 when the ATO was asked about the tax deductibility of interest on a loan a business may have taken out to repay a tax debt. 

       

 

It was the third time, according to ATO records, that the matter was raised. Of the two previous requests for clarification, one was made as far back as 1951 and the other even further back in time, in 1921.

The 1990 query resulted in the ATO issuing a taxation ruling to put the matter to bed, which has stood ever since. There are however curly caveats and conditions attached.

By way of background, the ATO admitted in its ruling that there were, and are, a number of “practical difficulties” associated with denying such a specific deduction for taxpayers carrying on a business. The difficulty goes right to the heart of the Income Tax Assessment Act 1997 (ITAA97), although at the time of the ruling’s issue some of the relevant sections were still in the Income Tax Assessment Act 1936.

Specifically, subsection 8-1(1) ITAA97 says: “You can deduct from your assessable income any loss or outgoing to the extent that it is incurred in gaining or producing your assessable income or it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income, except to the extent to which it is a loss or outgoing of capital, or of a capital, private or domestic nature, or incurred in relation to the gaining or production of exempt income.”

The “difficulties” the ATO refers to come about due to the fact that paying a tax debt is neither of a capital nature nor done to gain “exempt” income. 

The above tax ruling says: “Where a taxpayer carries on a business for the purpose of gaining or producing assessable income and, in connection with the carrying on of that business, borrows money to pay income tax (whether to preserve the assets of the business, maximise the return on them, retain sufficient money to fund the business or otherwise) then it is considered that the interest incurred on those borrowings is a normal incident of conducting that business.”

“That is, such an expense is an expense incurred in carrying on that business and hence qualifies for deduction under the second positive limb of subsection 8-1(1) of the act.”

Care needs to be taken however, as the ruling would not apply to interest on borrowings that are not connected with the carrying on of a business for the purpose of producing assessable income. 

Note however that the ruling does not consider situations where individuals borrow to pay off a tax debt.  In these cases, interest incurred by an individual on a loan to pay off a tax debt is not deductible.

 

Tax & Super Australia 
www.taxandsuperaustralia.com.au

 

 

 

 

site By AcctWeb