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Abstract

Inclusion in the capital gains tax (CGT) cost base of the investment property of interest denied deductibility under a split loan because of Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) (general anti‐avoidance rule (GAAR)) is a troublesome issue.1 It raises fundamental structural issues concerning the effect of the GAAR, the effect of the compensating adjustment mechanisms, and the effect and the relationship between the GAAR, the compensating adjustment mechanisms in Part IVA2 and other rules in the income tax. This article has come about in response to feedback on a previous article I had written.3 That previous article highly critical of a determination (Taxation Determination TD 2005/33) issued by the Australian Taxation Office (ATO) dealing with the inclusion of further interest and compound interest in the cost base of the investment property under a split loan. The ATO’s determination rejected cost base inclusion. The central criticism in that previous article was that the determination was technically flawed

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