Question 5 John and Anne were employed as kitchen staff in a popular Hobart restaurant, but they decided to open their own restaurant.

Question 5

John and Anne were employed as kitchen staff in a popular Hobart restaurant, but they decided to open their own restaurant. To do this, they borrowed $120,000 from the bank to purchase kitchen equipment, tables and chairs and various other items necessary to operate their restaurant. The loan was for a term of 10 years.

The restaurant opened in August 2015, but by June 2017, John and Anne decided to sell the restaurant and go back to work at their previous employer. They received a total of $250,000 from the sale of the restaurant, but (instead of repaying the bank) they used the money to buy an apartment in sandy Bay.

For the year ending30 June 2018, they incurred $6,250in interest costs on the original loan.

Required:

Advise John and Anne whether the interest on the loan would be deductible against their salaries from their employer.