The AAT has found that interest paid by a married couple on 3 loan accounts was not deductible as they failed to establish that the interest was incurred in deriving their assessable income or in carrying on a business.

The taxpayers, Mr and Mrs J, sought to claim these deductions for the 2010 and 2011 income years. They were out of time to request amended assessments, so they objected to the original assessments. The Commissioner disallowed the objections and the taxpayers applied to the AAT to review those objection decisions.

The evidence presented to the AAT did not make the situation clear and neither taxpayer gave oral evidence before the Tribunal. Their statement of facts asserted that they were the directors of a company, which formed a partnership with a second company. However, Mrs J’s statutory declaration provided that she, and not the company, was in partnership with the second company. The taxpayers claimed that they financed various business purchases by drawing money from their home loan facility. For example, they claimed to have spent $30,000 in December 2003 to purchase a backhoe, but produced no evidence to support this claim. They also said they spent $50,000 in September 2004 to buy out their “partners’ share of the business”, but the share sale agreement was dated May 2005.

The AAT speculated that the most likely scenario was that the partnership was originally carried on by the 2 companies, and then – after May 2005 – operated by the first company alone. In this situation, any interest paid would have been incurred in producing the assessable income of another entity. Accordingly, due to the lack of evidence, the AAT affirmed the Commissioner’s objection decisions.

(Re Jarvis and FCT [2016] AATA 99, AAT, File Nos 2014/5984-5985, Frost DP, 24 February 2016.)

[LTN 38, 26/2/16]