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Edited version of private ruling
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Ruling
Subject: Interest deductions - Macquarie Forestry Investment 2006
Can you claim a deduction for interest paid on a loan from a third party financial institution used to purchase an interest in the Macquarie Forestry Investment 2006?
Yes, subject to the prepayment rules.
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
You borrowed funds from a third party financial institution, that is, not from Macquarie Bank Limited (MBL), and used those funds to purchase an interest in the Macquarie Forestry Investment 2006.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1.
Reasons for decision
While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.
Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses and outgoings to the extent to which they are necessarily incurred in carrying on a business for the purpose of producing assessable income, except where the outgoings are of a capital, private or domestic nature.
Product Ruling PR 2006/28 is about the Macquarie Forestry Investment 2006 (the Project). It states a Grower's participation in the Project constitutes the carrying on of a business of primary production. It also states interest is deductible under a loan agreement with MBL and the deductibility or otherwise of interest arising from loan agreements entered into with financiers other than MBL, the internal financier, is outside the scope of the Ruling.
However, although the deductibility of interest arising from loan agreements entered into with financiers other than MBL is outside the scope of the Ruling, the deductibility of such interest expenses will simply follow ordinary taxation principles.
It follows in your case, your interest expenses in relation to your participation in the Project will be deductible under section 8-1 of the ITAA 1997 because your participation constitutes the carrying on of a business of primary production.
However, if the interest is prepaid, any tax deduction that is allowable will be subject to the prepayment provisions of the Income Tax Assessment Act 1936 (sections 82KZL to 82KZO).
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