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ATO Interpretative Decision

ATO ID 2002/247 (Withdrawn)

	This ATO ID is withdrawn from the database as it is a straight application of the law and does not contain an intepretative decision.
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CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision. This ATOID provides you with the following level of protection: If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.

Issue

Is the taxpayer, a partner in a partnership able to claim a deduction for losses incurred by the partnership under subsection 92(2) of the Income Tax Assessment Act 1936 (ITAA 1936)?

Decision

No. There is no partnership loss available to be claimed by the taxpayer under subsection 92(2) of the ITAA 1936 as the expenses incurred by the partnership are not deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997).

Facts

The taxpayer is a partner in a partnership. The partnership obtained a loan, the loan funds being used by a discretionary trust of which the taxpayer was a beneficiary. Expenses incurred in respect of the loan (interest, bank charges and borrowing costs) were claimed as a deduction by the partnership.

The partnership did not derive income from any source during the year of income and as a result of claiming the loan expenses a loss was incurred.

The partnership did not receive income either directly or indirectly, by way of interest or otherwise as a result of having allowed the trust to use the loan funds.

The partnership's claim for a deduction under section 8-1 of the ITAA 1997 was disallowed.

Reasons for Decision

Under subsection 92(2) of the ITAA 1936 a resident partner can claim a deduction for their individual interest in any partnership loss. In broad terms, a partnership loss is defined in section 90 of the ITAA 1936 as the excess of the allowable deductions over the assessable income of the partnership calculated as if the partnership were a taxpayer who was a resident.

Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income or is necessarily incurred in carrying on a business except where the outgoings are of a capital, private or domestic nature. The test of deductibility under paragraph 8-1(1)(a) of the ITAA 1997 is that 'it is both sufficient and necessary that the occasion of the loss or outgoing should be found in whatever is productive of the assessable income' ( Ronpibon Tin NL and Tongkah Compound NL v. FC of T (1949) 78 CLR 47; (1949) 4 AITR 236; (1949) 8 ATD 431).

The funds borrowed by the partnership were not used for an income producing purpose by the partnership. No income was derived by the partnership from the on-lending of the funds to the discretionary trust. Consequently, the expenses incurred by the partnership in respect of the loan (interest, bank charges and borrowing cost) are not allowable as deductions to the partnership under section 8-1 of the ITAA 1997.

There is no partnership loss available to be claimed by the taxpayer under subsection 92(2) of the ITAA 1936 as the expenses incurred in respect of the loan by the partnership are not deductible under section 8-1 of the ITAA 1997.

Date of decision: 20 December 2001

Year of income:	Year ended 30 June 1999
	Year ended 30 June 2000

Legislative References:
Income Tax Assessment Act 1936
   subsection 92(2)
   section 90

Income Tax Assessment Act 1997
   section 8-1

Case References:
Ronpibon Tin NL and Tongkah Compound NL v. FC of T
   (1949) 78 CLR 47
   (1949) 4 AITR 236
   8 ATD 431

Keywords
Partnerships
Partnership income
Borrowing's & loans
Expenses of borrowing

Date of publication: 22 March 2002

ISSN: 1445-2782