Deductibility of Interest on Loan to Settle Trust
The Tax Office has released a Taxation Determination in which the Commissioner sets out his views on the deductibility of interest incurred on a loan used to settle a trust to benefit the borrower and others.
The determination states that the interest incurred on a loan will only be deducted to the extent to which a taxpayer has used the borrowed monies to gain or produce assessable income of the taxpayer.
The determination also states that, generally, interest incurred on a loan to settle a ‘hybrid trust’ is not deductible either to a taxpayer or other beneficiaries of the trust.
A hybrid trust is a trust that has both fixed and discretionary elements.
