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31 May 06 Interest deductions denied - Tabone

The AAT has upheld the Commissioner's denial of deductions for interest incurred by a taxpayer in relation to the construction of a home on land owned by a unit trust. The proceeds of the loan appeared to have been used to acquire units in the unit trust, with rental being paid by the taxpayer to the trustee of the unit trust for the occupation of the home. The unit trust claimed maintenance expenses and building depreciation as deductions against the rent. The AAT held that there was no nexus between the interest outgoings and any likely assessable income from the unit trust. Even if such a nexus could be identified, the AAT held that the interest expenditure was of a private or domestic nature. The AAT concluded, therefore, that the taxpayer was not entitled to a deduction under s 8-1 ITAA 1997. Alternatively, the AAT considered that Part IVA applied to the arrangement, distinguishing FCT v Janmor Nominees Pty Ltd (1987) ATC 4813: Tabone and FCT [2006] AATA 466 (AAT, Pascoe SM, 29 May 2006).

For a copy of the decision, go here

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