Jason Dreams purchased a hardware business on 1 July three years ago for $130,000 by taking out a business interest only loan for $130,000 with West Bank at 10% interest for a term of ten years. Jason paid loan establishment fees and stamp duty in setting up the loan of $1,500. Unfortunately, the business ran at a loss and on 1 August of the current income tax year, Jason sold the business for $100,000 and used the proceeds to reduce the loan balance to $30,000.

Which one of the following statements about her taxation situation istrue?

Pursuant to the decision inSteele v FCT 99 ATC 4242, none of the interest expense incurred on the business loan is deductible to Jason as it is capital in nature because it relates to the purchase of a capital asset.

Interest on the business loan is deductible while the business is operating, but ceases to be deductible from 1 August when the business is sold.

Pursuant to the decision inFCT v Brown 99 ATC 4600, Jason will continue to be entitled to a deduction for the interest expense on the remaining loan after the sale of the business as the nexus between the carrying on of the business and incurring the interest has not been broken.

Jason was entitled to claim an immediate deduction of $1,500 for the establishment fees and stamp duty on the business loan in the income tax year when the loan was taken out.

Jason is entitled to claim a deduction under section 8-1ITAA 1997for any legal fees he incurs relating to the sale of the hardware business.