Tax Tip 117: Deductibility of Interest on Loans to finance Super Contributions

Discussion in 'Accounting & Tax' started by Terry_w, 9th May, 2016.

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  1. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

    9th Jun, 2006
    Australia wide
    Deductibility of Interest on Loans to finance Super Contributions

    Interest is not deductible on money borrowed and used to fund contributions into superannuation.

    John borrows $100,000 from a LOC set up against his main residence and contributes this money to his SMSF as a non-deductible contribution. The interest on the LOC isn’t deductible.

    But if an employer borrows to pay the superannuation of an employee they may be able to deduct the interest on this loan under s26-80 ITAA 1997 INCOME TAX ASSESSMENT ACT 1997 - SECT 26.80 Financing costs on loans to pay superannuation contribution

    The employer can also claim a deduction for the super payment under s290-60 ITAA 1997 INCOME TAX ASSESSMENT ACT 1997 - SECT 290.60 Employer contributions deductible

    John is self-employed by a company he owns. The company could borrow $20,000 to pay John’s superannuation guarantee contribution. The interest on this loan would be deductible to the company as well as the $20,000 being deduction to the company.

    An individual cannot borrow and use the borrowed money to contribute to super and claim a deduction. An individual can borrow to contribute, but the interest is not deductible.
  2. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

    18th Jun, 2015
    Fun tax fact - Sometimes a concessional (taxed) super contribution won't be. It will be a non-concessional contribution.

    1. Taxpayer claims more of a deduction than their taxable income allows
    2. Employer uses incorrect BSB / Bpay etc to remit contribution/s (Common)
    3. Individual fails to correctly complete the deduction notice requirements prior to lodgement.