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Edited version of private advice
Authorisation Number: 5010074273344
Date of advice: 18 May 2021
Ruling
Subject: Deductions - interest expenses incurred on borrowings used to pay PAYG instalments tax obligations
Question
Are you entitled to deduct the interest expenses incurred on borrowings used to pay PAYG instalments tax obligations and/or your year-end tax liability that arise from you carrying on a business?
Answer
Yes. Having considered your circumstances and the relevant factors, you will be entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for interest incurred on money borrowed to meet the income tax and PAYG instalment tax obligations that arise from your sole trader business.
However, any interest incurred on money borrowed to pay your income tax liabilities that arise from non-business income, such as employment or investment income, will not be deductible under section 8-1 or subsection 25-5(1) of the ITAA 1997. As such, any interest incurred on money borrowed to pay your income liabilities that arise from both business and non-business income will need to be apportioned on a reasonable basis.
This ruling applies for the following:
XXXX to 30 June XXXX
Relevant facts and circumstances
You are a medical practitioner who practices at a number of locations.
You operate as a sole trader with your own ABN and are registered for GST.
You receive payments directly from clients and health funds based on a fee for service and you do not derive employment income.
You did not receive any investment income in XXXX, and you possibly derive some capital gains in XXXX.
You plan to borrow XXXX in XXXX for your PAYG instalments/income tax obligations.
You started employing your staff when you commenced being a sole trader. You employed X staff in XXXX financial years.
You pay a fee into a partnership account which is a fee for rent and marketing costs.
You are responsible for generating your own income and employing staff. You run your own books, lodge business activity statements and maintain all your own insurances.
You have equity in your main residence and plan to borrow against the equity in your main residence in order to pay your PAYG instalments and/or year-end tax liability related to your business activities as a sole trader.
You will incur interest expenses on the borrowings.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 8-1
Income Tax Assessment Act 1997 section 25-5