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TIA congratulates ATO on seeing the big picture

Publication date: 24 Jun 98 | Source: THE TAX INSTITUTE

The Taxation Institute of Australia has welcomed the High Court's decision to grant special leave to appeal to the taxpayer in Steele's case versus the Deputy Commissioner of Taxation.

Steele's case involved the taxpayer claiming a deduction for interest borrowed to acquire land on which development was intended to be carried out. The Federal Court had earlier held that the interest was not deductible, and the ATO issued a draft Ruling (TR 97D/18) setting out its views on the deductibility of interest.

The essence of the draft ruling is that in order for interest to be deductible the taxpayer must have commenced to carry on a business or income-producing activity to which the borrowing relates.

"Given this issue is now in play, credit should be given to the Commissioner for the readiness the ATO has shown to have the issue heard and the support given to the taxpayer in making the submission to the High Court," said Taxation Institute of Australia President, Mr Ken Spence.

"The ATO could have taken a narrow view in this case and opposed the taxpayer's special leave application. However, obviously the ATO was well aware of the importance of the case since the eventual decision of the High Court is of relevance to all taxpayers claiming interest as a tax deduction in this and other similar circumstances."

"The Institute hopes the High Court decision will clear up a confusing and potentially expensive question for taxpayers, particularly for would be developers," Mr Spence said.

The only downside to the saga is that in association with ATO issuing the draft Ruling after the Federal Court decision in Steele's Case, it withdraw earlier published rulings dealing with the deductibility of interest.

"This means that taxpayers are caught in limbo in the intervening period, since the ATO has indicated that the views expressed in TR 97/D18 are subject to the decision of the High Court," Mr Spence said.

"Invariably, this will create ongoing uncertainty for taxpayers involved in circumstances similar to those involve in the Steele's case until the High Court's decision is finally handed down," he said.