Deductible Under Split Loan Facility
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.
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.
Tax Office has sought special leave to appeal this decision.
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.
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