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01 Nov 12 Interest on full recourse loan used to prepay capital protected borrowing interest - TD 2012/D10

On 31 October 2012, the ATO released for public comment by 30 November 2012 draft Taxation Determination TD 2012/D10 entitled "Income tax: will interest on a full recourse loan be denied deductibility as a consequence of Division 247 of ITAA 1997 where that loan is used to prepay interest on another loan which is a capital protected borrowing?"

The answer given is "No. Where a taxpayer enters into a limited recourse loan (investment loan) which is made under a capital protected borrowing for the purposes of Division 247 of the Income Tax Assessment Act 1997 (ITAA 1997) and a full recourse loan (interest loan) is entered into solely to fund an amount of prepaid interest on the investment loan, interest incurred on the interest loan will not be denied deductibility as a consequence of Division 247."


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