ATO Interpretative Decision

ATO ID 2002/607

Income Tax

Deductibility of interest on loan taken out to pay a tax debt
FOI status: may be released

This document has changed over time. View its history.

CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.

Issue

Is a deduction allowable under either section 8-1 or section 25-5 of the Income Tax Assessment Act 1997 (ITAA 1997) for interest incurred by an individual taxpayer on a loan taken out in order to pay a tax debt?

Decision

No. A deduction is not allowable under either section 8-1 or section 25-5 of the ITAA 1997 for interest incurred by an individual taxpayer on a loan taken out in order to pay a tax debt.

Facts

The taxpayer, an individual with investment income, had a large tax debt which wass due for payment.

The taxpayer borrowed funds to pay this tax debt and incurred interest on the loan.

Reasons for Decision

Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature.

The interest expense was not incurred by the taxpayer in earning their assessable income and also is private in nature. Therefore no deduction is allowable to the taxpayer under section 8-1 of the ITAA 1997.

Subsection 25-5(1) of the ITAA 1997 allows a deduction for expenditure incurred in managing the taxpayer's tax affairs.

However, paragraph 25-5(2)(c) of the ITAA 1997 specifically precludes a deduction under subsection 25-5(1) of the ITAA 1997 for expenses associated with borrowing money by an individual taxpayer (including payments of interest) to pay a tax liability. The interest expense incurred by the individual taxpayer is therefore not deductible under subsection 25-5(1) of the ITAA 1997.

Amendment History

Date of Amendment	Part	Comment
24 April 2015	Reason for Decision	Change 'has' to 'had' within facts, to maintain grammatical correctness.

Date of decision: 1 August 2001

Year of income: Year ended 30 June 2001 Year ending 30 June 2002 Year ending 30 June 2003

Legislative References:
Income Tax Assessment Act 1997
   section 8-1
   subsection 25-5(1)
   paragraph 25-5(2)(c)

Keywords
Deductions and expenses
Interest expenses

Siebel/TDMS Reference Number: 1-69JGJQC, DW260511

Business Line: Small Business/Individual Taxpayers

Date of publication: 31 May 2002

ISSN: 1445-2782

history

	Date:	Version:
	1 August 2001	Original statement
You are here	24 April 2015	Updated statement

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