Q: Does interest
paid on a loan need to be proportionately allocated to all of the streams of
income (even non-taxable income such as donations and dividends received) or do
we only need to allocate the interest on the loan account to the
"trade" streams of income (such as rental income, interest received
etc.). We asking this in respect of a trust tax return.
Our client has the following sources of income: consulting,
interest, donations from trustee, rental income and dividends received. Our
client has a large loan account on which interest is paid by the trust.
A: An expense
needs to be apportioned where it has been incurred in general and not directly
in respect of an income producing activity. In respect of debt, in our view the
interest expense would be allocated pro rata as the money was utilized or if
used in general on a per income source bases if that is a reasonable basis for
apportionment. You would therefore have to determine on which activity the loan
was expended and whether such activity produced income.
Disclaimer: Nothing in this query and answer should be construed as
constituting tax advice or a tax opinion. An expert should be consulted for
advice based on the facts and circumstances of each transaction/case. Even
though great care has been taken to ensure the accuracy of the answer, SAIT do
not accept any responsibility for consequences of decisions taken based on this
query and answer. It remains your own responsibility to consult the relevant
primary resources when taking a decision.
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