This session examines Commissioner of Taxation v Roberts and Smith (1992) in the context of interest deductibility following Ure and Fletcher. The case considers how interest on partnership borrowings is to be characterised where borrowed funds were used to make payments to partners, and where later-admitted partners assume liability for that borrowing. The central issue is how deductibility is assessed at the partnership level, and when a simple “use of funds” analysis is insufficient.
Discussion Focus
- Interest deductibility assessed at the partnership level under Division 5, rather than by reference to individual partners’ personal use of funds
- The limits of “use of borrowed funds” tracing, and why deductibility remains a characterisation inquiry
- The application of Fletcher to ordinary partnership borrowing, not just artificial or scheme arrangements
- The legal significance of refinancing and novation on partnership reconstitution, and why it affected incoming partners differently from original partners
- The role of partnership capital and entitlement analysis in determining whether interest retains an income-producing character
Please see below link to case materials which is assumed reading in order to participate in the discussion:
Re Commissioner of Taxation v Joan Dorothy Roberts and Valentine Roy Smith [1992] FCA 363
Discussion led by Adrian Cartland