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The extent to which the Commissioner would allow a deduction for funding costs where lenders become eligible for a tax offset will depend on the facts of each particular case.

A lender under a Land Transport Facilities borrowings agreement would be expected to lend at a rate of interest that provided it with a reasonable commercial return on its borrowed funds.

In Taxation Ruling TR 95/33 we stated that if an outgoing produces no assessable income, or the amount of the assessable income is less than the amount of the outgoing, then it may be necessary to examine all the circumstances surrounding expenditure to determine whether the outgoing is wholly deductible. This may include an examination of the taxpayer's subjective purpose, motive or intention. If the expenditure is genuinely used in the production of assessable income then a deduction would be allowable.

However, TR 95/33 also envisages apportionment of expenditure in some instances, notably where expenditure is explained by another objective, such as the derivation of exempt income or the obtaining of a tax deduction.

If you wish to comment on this draft Determination, please send your comments by 15 January 1999 to: Contact officer details have been removed following publication of the final determination.