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The ATO has ruled that compound interest is deductible just like simple straight line interest

The ATO issued Taxation Determination TD 2008/27 which follows the Federal Court and High Court decision in Harts case that compound interest is deductible according to the same principle as simple straight line interest. However, for more complex transactions that involve split loans, the ATO does not rule out applying the anti-avoidance provisions in Part IVA of the Tax Act agains the transaction.

The AAT, in Southwell-Keely v Commr of Taxation, has affirmed the decision of the Commissioner to disallow the self-education expenses claimed by a taxpayer.  In this case, the taxpayer enrolled in a degree in hotel management. The degree required 500 hours of practical pre-experience.  The taxpayer undertaken the practical experience at a hotel and after completing the 500 hours, continued to work in the hotel in various roles while studying for the degree.

The taxpayer contended that the course of study was relevant to his progression of his career at the hotel, although the degree was not a condition of his continued employment or obtaining pay increases.

The AAT held that there was insufficient evidence showing that the course of study was incidental or relevant to the gaining of the taxpayer's assesable income.  Rather the expenses were concerned in obtaining work in the future, and on this basis, denied the deduction claimed by the taxpayer.

The ATO's stance on Capital Protected Products

 As announced in the 2008-09 Budget, the benchmark interest rate in the capital protected borrowing rules will be changed to the Reserve Bank of Australia's indicator variable rate for standard housing loans. The amendment will apply to capital protected borrowing arrangements entered into after 7.30pm (AEST) on 13 May 2008. The current law, which applies the Reserve Bank of Australia's indicator variable rate for personal unsecured loans to determine the cost of capital protection, will continue to apply to existing capital protected borrowing arrangements for a period of five years or the life of the product, whichever is the shorter.

The ATO has advised that it will apply the existing law in the period between the announcement and enactment of the proposed law and will not undertake specific compliance activity to enforce the existing law during the period between the announcement and enactment of the proposed law.

 Does your business have a succession plan?

A recent survey indicates that 62% of the business in Australia do not have a succession plan.  Although much of the transactions during the succession process are one-off transactions, significant tax opportunities are unnecessarily lost due to lack of adequate planning.  The major tax risks & opportunities involving succesion planning include:

• Capital Gains Tax Exemptions
• Taxation of Goodwill
• Demergers and claiming a roll-over relief
• Trust cloning

Please contact Aspiron Consulting Group for an initial assessment of your tax risks.

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