Problems in Deductibility of Interest
Business and Law, Vol. 1, No. 2, pp. 46, 1966
Victoria University of Wellington Legal Research Paper Series Richardson Paper No. 8
12 Pages Posted: 14 Jun 2012 Last revised: 19 Feb 2015
Date Written: November 1, 1966
Abstract
The deductibility of interest was previously governed by s 112(g) of the Land and Income Tax Act 1954, which provided that no deduction could be made in respect of interest, except so far as it was payable on capital employed in the production of assessable income (cf. section DA1 of the Income Tax Act 2007). This article discusses the questions posed by the application of this provision to factual situations arising in commercial and family transactions. These questions include the meaning of the term ‘interest’, the test of deductibility, the appropriate forms of structuring to ensure deductibility of interest, and the creation of deductions by means of artificial transactions. A further consideration is whether, in principle, interest should always be deductible if the capital is employed in the production of assessable income, particularly where allowing a deduction for interest creates a tax preference for debt financing.
Abstract by Allegra Crawford.
Keywords: Land and Income Tax Act 1954, interest, deductibility of interest, commercial law, tax law, debt financing
JEL Classification: K34
Suggested Citation: Suggested Citation