Refinancing principle

[The Project Mgr]

Hi folks,

I tried to do a search on this forum for an explanation of what the "refinancing principle" is about, and I have not been able to find any.

Can somebody please elaborate what this principle is about?

thank you kindly,
PM

 

[The Y-man]

Where did you hear the term? Can't say I have ever come across it..... Maybe the principle is "Refinance when you can"?

Cheers,

The Y-man

 

[Rob G.]

This term has been used in cases concerning deduction of interest on borrowings to repay capital contributions or Partner/Director loans.

FC of T v Roberts 92 ATC 4380

FC of T v Smith 92 ATC 4380

TR 95/25

But maybe it has been used on this forum merely for general principles of interest deductibility such as TR 2000/2.

Cheers,

Rob

 

[Ross]

I think you'll find its used in relation to topics that discuss the benfits of Hybrid Discrationary Trusts.
My understanding of it is where persons have lent monies to their HDT's and at some point the HDT pays back these borrowings by taking on new borrowings. Regardless of what the person does with those repaid borrowings ( private etc ), the new debt taken on by the HDT is still deductible.
Im sure there are other experts here on the forum though that can confirm if this is correct

Ross

 

[Rob G.]

That is the first point I mentioned.

You need to clarify that the original contributed proceeds MUST have been used to produce assessable income in order to allow interest deductions on the replacement funds.

Note also that TR 95/25 has extended the practice to company loans but is silent on trusts !!!

Even worse, the draft ruling TR 93/D38 actually DID mention trusts - so why was it pulled ???

Cheers,

Rob