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The Tax Office has recently released Tax Ruling TR 2003/9 relating to the deductibility of interest costs for Trusts where the interest relates to funds borrowed to pay out beneficiary entitlements.
There are specific requirements detailed in the ruling, however Trustees need to be aware that borrowing from a bank to pay beneficiaries amounts which may have accrued to them from items including internally generated goodwill and/or revaluations of trust assets may no longer result in a deduction for the interest component of the borrowings.
Where a beneficiary has loaned money to the Trust for business purposes and those monies are repaid from other borrowings, the interest will be deductible.
If you have any concerns regarding this issue, please do not hesitate to contact our office.
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