Interest Deductible Under Split Loan Facility

The Full Federal Court has allowed taxpayers a deduction for compounding interest claimed under a split loan facility, whereby borrowings are split into one private account and one for investment purposes. This allows repayments to be streamed to the private account. Compounding interest accrues on the investment account so the private component diminishes over time and the investment component grows.

The Federal Court found that Part IVA general anti-avoidance rules did not apply, as the main purpose of the arrangement was to borrow money, not to obtain a tax benefit. Accordingly, the interest was allowed as a deduction.

The Tax Office has sought special leave to appeal this decision.

CAUTION: We urge clients to take great care when entering into split loan arrangements, particularly pending the outcome of the Tax Office's application for special leave.

Please contact us on 02 4926 4522 or email mail@perryure.com.au for further information.