Income Tax Act 2007 section 385

General provisions about loans

Section 385 sets out the general rules about what it means for a loan to be "used" for a qualifying purpose, and the conditions that must be met for interest relief to apply under various provisions in this chapter.

• When the chapter refers to a loan being "used", this means the borrowed money being applied for a particular purpose, and (except for inheritance tax loans under section 403) includes using a loan to reimburse expenditure already incurred
• For loans covered by sections 392, 396, 398, 401 and 403 (such as loans to buy interests in close companies, employee-controlled companies, partnerships, co-operatives, or to pay inheritance tax), the loan must be made in connection with the use of the money and either at the time of that use or within a reasonable time afterwards
• Those same sections only apply if the loan is used directly for the qualifying purpose without first having been applied to something else
• Where a seller gives credit to a purchaser for money due under a sale, this is treated as the making of a loan used by the purchaser to make that purchase