Division 7a Loan Agreement

A company makes a loan to an associate. Where there is a complying Div 7A loan agreement is the interest expense to the associate tax deductible?

Answer

The fundamental test for deductibility of interest as consistently applied by the Courts is the “use” test… meaning to the use to which the funds have been put.

If the associate has used the funds for personal expenses, then of course a tax deduction cannot be claimed.

If however he has used the funds to fund another business or acquire an income producing asset, then there is the possibility of claiming a tax deduction.