In this Taxpayer Alert (which you can view here), the ATO expresses its concern about taxpayers claiming deductions for interest and other borrowing costs when the borrowing produces (or may produce) income for other people.
Here is an example of the relevant circumstances:
The ATO's concern is straightforward. Basically, the taxpayer is claiming costs associated with a borrowing that is used to produce income for other people. Consequently, the taxpayer is not entitled to a deduction for the taxpayer's interest and other borrowing costs.
The ATO extends its reasoning to circumstances where:
It is essential that taxpayers and their advisers understand these fundamental aspects of tax planning and the full effect of the trust deeds which they use. Of particular importance in this area is that there is no single type of hybrid trust. Each one operates differently and must be assessed in view of the taxpayer's objectives.
If you have any questions in relation to this article, or trusts, superannuation or tax generally, please call Maddocks in Melbourne on (03) 9288 055 or in Sydney on (02) 8223 4100 and ask for a member of the Maddocks Commercial Team.
Julian Smith is a partner in the Maddocks Commercial team.
Julian advises extensively in the following areas:
Julian advises clients ranging from public companies servicing the wholesale financial services market to high net worth individuals and their advisers.
Julian has been with Maddocks since undertaking articles in 2001.
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For more information, contact Maddocks on (03) 9258 3555 and ask to speak to a member of their team.