Loss of Deductions for Interest on Shares After Take-over

I think I know the answer to this but just wanted to see if I could get confirmation. Also, just sharing this as an example of one way share investing differs from property:

Scenario:

1. Purchased $20K of shares in a particular company a few years ago, 100% borrowed funds, interest deductable.
   
   
2. Corporate mis-management sees the value of my shares down to a paltry $7K
   
   
3. Sharks circle, takeover offer comes in, board unanimously recommends, pats themselves on the back for a job well done.
   
   
4. Effectively an all-cash takeover will see compulsory acquisition of my shares. $14K capital loss for future years. Bra-vo.
   
   
5. Still have $14K loan outstanding, am I correct that I lose deductibility of interest for this amount, given I no longer hold the asset?
   
   
6. Assuming this is the case I will pay out the remaining amount with funds from my PPOR offset, Debt recycling in reverse. Sad Panda :-(
   

 

5. No. not necessarily

 

Ok, got me curious, any more info/direction you can point me?

 

Tax Tip 71: Deduction of interest after assets sold https://propertychat.com.au/communi...deduction-of-interest-after-assets-sold.5245/

 

Hi Terry, I did read this tip and replies in entirety, but there was no answer, just the following statement:

"Tip: Once an asset is sold any loan used to acquire that asset is no longer deductible

Note- there are limited exceptions for where the asset is sold at a loss and I will cover this in a future tip."

@Paul@PFI also made the comment:
"There can be some infrequent exceptions to this eg : a CGT loss or destruction of the property etc. All such exceptions need advice."

I've had a look on the ATO website found TR2004/4 whigbseems to relate to this issue and states:

"10. Where interest has been incurred over a period after the relevant borrowings (or assets representing those borrowings) have been lost to the taxpayer and relevant income earning activities (whether business or non-business) have ceased, it is apparent that the interest is not incurred in gaining or producing the assessable income of that period or any future period. However, the outgoing will still have been incurred in gaining or producing 'the assessable income' if the occasion of the outgoing is to be found in whatever was productive of assessable income of an earlier period."

 

Found this blog post on an accounting website too, suggested interest might be deductible on an ongoing basis, with a couple of exceptions:

• COMMERCIAL ADVANTAGE – If the loan is being kept on foot just so the taxpayer can claim deductions or is extended for other ongoing commercial advantage, then the interest will not be deductible. Therefore, where you have the capacity to pay out the loan but choose not to, then the interest may cease to be deductible.
• LENGTH OF TIME – The amount of time since the sale is a relevant factor. However, the courts have been quite generous in this regard – allowing interest to still be claimed even though more than ten years has passed since the sale of the income producing asset.

So maybe it can continue to be deducted until my PPOR is paid off and I "have the capacity" to pay the debt off?

 

Yes it could be deductible depending on the circumstances.

See Paragraph 50 of TR 2004/4

And PBR 1012763585255 Austax

 

OK, have now read paragraph 50, must say I found it quite unagreeable.

Basically if you reasonably could repay the loan then you can't claim a deduction. there goes that idea. :-(

Thanks for the response though @Terry_w much appreciated.