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The ATO has published a Decision Impact Statement in relation to the decision in St George Bank v FCT [2009] FCAFC 62; 2009 ATC 20-103; 73 ATR 148. The case concerned deductions claimed for interest payments under a debenture that was connected with the raising of additional capital by the appellant to meet the capital adequacy requirements of the Reserve Bank of Australia ("RBA"). The Full Federal Court concluded that the payments of interest were of a capital nature and thus not deductible.

The ATO view of Decision is that the decision was in accordance with established principles and is consistent with the Commissioner's view that a deduction under s 8-1 is not allowable in respect of returns paid for the raising and maintaining of Tier 1 capital for a bank. However, the decision should have little on-going importance in relation to outgoings of the kind considered in this case as the deductibility of such outgoings is now determined by reference to the rules on the tax treatment of gains and losses from financial arrangements contained in Division 230 of the ITAA 97 and debt and equity interests contained in Division 974 of the ITAA 97.


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