Capitalised interest : tax-deductible

[WebBoard]

From: Anonymous


Hi all,

If the interest is chosen as 'capitalised' in the PIA software, one gets a choice of 'capitalised component tax-deductible'.

Now, is this a choice ? I saw a reference somewhere at this site mentioning that this is so depending upon individual's circumstances. Exactly which factors determine whether the capitalised interest component is tax-deductible ?

- PIAUser

 

[WebBoard]

Reply: 1
From: Webmaster (Somersoft)


This is currently a very grey area and subject to change. My official line (in Australia at least) is to "consult your accountant and, if in doubt, choose to make the capitalised interest non-deductible, or stick to interest-only".

A few years ago, the A.T.O. published guidelines that argued under Part IVa anti-avoidance legislation, capitalised interest in a linked loan arrangement would not be considered tax-deductible.

However, in a recent case (Hart v Commissioner of Taxation), the Full Court of the Australian Federal Court has allowed such a claim and argued that Part IVa rules do not apply. The ATO has now sought leave to appeal to the High Court and we await the outcome with some interest.