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Dear Lecturer,
if a loan has been taken for the purchase of plant and machinery to be used in business, would the interest arising as a consequence of the loan be allowed or disallowed for tax-adjusted profit purposes?
I’m confused in this regards because CAPEX related activities are disallowed whilst activities having a nexus to business is allowed.
Similarly, if a loan has been used for the production of exempt income; would the interest payable on that loan be disallowed or allowed?
Please enlighten me with respect to this topic. Thanking you in advance.
Best Regards,
Rojid Mohammad Nayaz.Interest paid on a trading loan, such as a loan to buy plant and machinery or a property to be used in the trade is an allowable deduction in deriving the adjusted trading profit. Interest payable on a non trading loan is disallowed in the adjustment of profit – the correct treatment then of non trading loan interest payable will depend on whether you are dealing with a company or an unincorporated trader but in either situation it is firstly disallowed as stated above in the adjustment of trading profit.
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