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Articles
Guarantee Costs Occasionally Deductible
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Australian Taxation Office (ATO) Bungled Attack on Foreigners
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Tax File Numbers (TFN) and Super Funds
Recognition of same-sex Couples in Super
Guarantee Costs Occasionally Deductible
In a recent AAT decision, a guarantor was given tax relief for his costs.

An individual who was a facilitator of finance for the importation of fuel, found a financier who agreed to provide the finance if the facilitator would give a guarantee.

 

The importation of the fuel occurred, but the proceeds were never paid (it seemed to be a clever scam) and the financier demanded the guarantee be fulfilled.  In order to do this the facilitator borrowed from a bank and subsequently claimed the interest paid.

 

Although guarantees are seldom deductible, in this instance the AAT agreed there was a nexus between the potential commission that would have been earned on the transaction and the providing of a guarantee.  Therefore, the deduction was allowed.

 

In many instances a guarantee is provided to support a family member’s failing business.  The calling up of the guarantee will probably continue to be a non-deductable (and private) transaction, as well as interest on any loan taken out to pay the guarantee.

 

The future of this case (Willersdorf-Greene) will be of interest to many tax payers faced with these guarantee problems, because the precedent is now quite clear to the AAT that if there is a nexus with the potential of income, that is sufficient.

 It is likely to be appealed by the Australian Taxation Office.  The merits and the unfortunate circumstances of some tax payers might influence a tribunal’s decision, because this result is a departure from generally understood principles.

22nd-December-2009