e_dipn13a_Interest Expense_s16(2ABC)

A there was no other security in the year of

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Unformatted text preview: was secured by a fixed deposit of $1M earning tax-free interest of 4% p.a. There was no other security. In the year of assessment, F earned interest of $40,000 from the deposit and paid interest of $50,000 on the loan. The amount of interest expenses allowable for deduction will be reduced by $40,000, being the tax-free interest earned. In other words, the allowable interest is $10,000. Example 6 The $1M loan in Example 5 was secured by a deposit of $500,000 and some shares which were also worth $500,000. The deposit generated tax-free interest of $20,000. 11 The amount of interest expenses allowable for deduction will be reduced by the amount of tax-free interest ($20,000) generated from the deposit. In other words, the allowable interest is $30,000. Example 7 The $1M loan in Example 5 was secured by a deposit of $2M that generated tax-free interest of $80,000. There was no other security. The amount of interest expenses allowable for deduction will be reduced by $40,000, which is calculated as follows – $1M (loan) $2M (deposit) $80,000 x = $40,000 Example 8 The $1M loan in Example 5 was secured by a deposit of $1M (which generated tax-free deposit interest of $40,000) and some shares valued at $500,000. The amount of interest expenses allowable for deduction will be reduced by $26,667, which is calculated as follows $1M (deposit) $1.5M (deposit + shares) $40,000 x = $26,667 The value of shares used as security may vary from time to time. For the purposes of this calculation, a reasonable basis of averaging, such as by reference to month end balances, will be accepted. Example 9 A deposit of $2M (generating tax-free interest of $80,000) was used to secure a loan of $1M used for financing onshore business activities and another loan of $1.5M used for financing offshore businesses. Interest incurred on the onshore business loan was $50,000 and that on the offshore business loan was $80,000. 12 In this example, the deposit was used to secure two loans. The amount of interest expenses allowable for deduction will be reduced by $32,000, which is calculated as follows $80,000 x Example 10 The two loans in Example 9 were secured by...
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This note was uploaded on 03/11/2010 for the course BBA B415 taught by Professor Mrli during the Spring '10 term at Academy of Art University.

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