PIPA lodged a complaint with the Australian Tax Office (ATO) recently regarding marketing material from a non-member which appeared to promote a tax avoidance scheme.

The advertisement appeared to be promoting the allocation of rent from an investment property to pay down one’s owner occupier (non-deductable) debt and in return receive favourable tax advantages with regards to the higher interest deductions associated with the investment property.

In his response to PIPA, ATO Assistant Commissioner Michael Ingersoll said that the information provided was suggestive of a form of loan interest payment arrangement that may have similarities to arrangements on which the ATO has published its views.

“Taxation ruling 98/22 describes our view on ‘certain linked or split loan facilities’ and Taxation determination 2012/1 describes our view on ‘investment loan interest payment arrangements’. These list the features of arrangements we consider fall within the general anti-avoidance parts of the Income Tax law,” the Assistant Commissioner said. 

“The relevant principles governing the deductibility of interest and compound interest are discussed in Taxation ruling TR 95/33 and Taxation determination TD 2008/7.

“Consistent with these views, the ATO is interested in arrangements that may attract the general anti-avoidance provisions (in Part IVA of the Income Tax Assessment Act 1936) and result in the denial of deductions for interest that would otherwise be available under section 8-1 of the Income Tax Assessment Act 1997.

“The application of Part IVA depends on a careful weighing of all the relevant facts and surrounding circumstances of each case. Therefore, in the absence of all relevant information it is not possible to state definitively whether a particular arrangement or transaction will attract Part IVA.

“We encourage investors to read our information on Tax Planning, including information about tax avoidance schemes.

“Arrangements which capitalise or otherwise increase investment loan interest, while freeing up funds for private purposes by increasing the overall level of tax deductions may be subject to Part IVA in a similar way to the arrangement described in Taxation determination 2012/1 (see above).”

More information on this matter will be available in the next issue of the PIPA Adviser.