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The deductibility of interest, Forrest’s case and hybrid trusts


"Hybrid trusts" are trusts where the interests of beneficiaries include both fixed and discretionary entitlements to income or capital or both. They have become a popular medium for structuring investments. The Commissioner of Taxation has published TD 2009/17, in which he expressed his views on the deductibility of interest on funds borrowed to invest in hybrid trusts. The 2010 decision of the Full Court of the Federal Court in Forrest v FCT, however, arguably casts some doubt on the correctness of the Commissioner's approach. In this article, the author examines issues regarding the deductibility of interest relating to investments in hybrid trusts and the implications of the decision in the Forrest case.

The author concludes that the Commissioner's view, expressed in TD 2009/17 and his decision impact statement on Forrest, that an apportionment of the interest deduction is required in all cases is unlikely to be accepted by a court.

Author profile

Bradley Jones CTA
Bradley is a member of the NSW Bar, he has a broad practice in Commonwealth and state revenue matters where regularly advises and appears for both taxpayers and revenue authorities. He advises resident and non-resident clients in the finance, property development, telecommunications and mining industries in relation to both domestic and international transactions. Before coming to the Bar in 2005, Bradley was a senior associate at Mallesons Stephen Jaques. - Current at 31 March 2015
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