Tax Tip 222: Borrowing to Pay Super and Deductibility of Interest

In the past we would have said that is not possible to borrow to make a super contribution and to claim the interest. But the laws have recently changed to allow all members of a fund to make a contribution to their superannuation and claim a deduction for doing so – in certain circumstances.

Now, Interest could be deductible to fund contributions to super because of s26-80 ITAA97.


This section says you can only deduct a ‘financing cost’ if you can deduct the premium under s290-B. ‘Financing cost’ includes interest s26-80(2)(a) and expenses of borrowing s26-80(2)(b)

INCOME TAX ASSESSMENT ACT 1997 - SECT 26.80 Financing costs on loans to pay superannuation contribution

 

Woah. May I ask for a Simpson example.

 

the interest would not be deductible for Montgomery Burns

 

Is that because he is 76?

 

he

he was born in 1881 so yes over 75

 

And....

Montgomery Burns is a employee. Sub 290-B is EMPLOYER contributions. Subdiv 290-C governs employee (self) contributions.

I would doubt the the nuclear reactor is operated by a soletrader. Smithers would have got some good tax advice for Monty.

 

and as a high net worth individual would have a self managed super fund and since he is a US tax resident he wouldn't meet the active member test.

 

No problem. He contributes to Cbus.

 

Say, I take $100k from a LOC. Make non-concessional and/or catch-up contributions to my super. Buy shares, property etc. The interest on the LOC is tax deductible, essentially negative geared against my personal income? I smell LRBA-like possibilities

 

No its non-deductible.

 

Cheers. So does not apply to employee contributions.

 

Yes this only applies to employers and I don't think the law has changed on this recently.

An example may be where there is person 'self' employed by a company. The company could borrow to pay their super, claim extra deductions, and feed more money into a holding company or bucket company for investing.

 

What about sole traders?

 

Probably ok

 

Would be great if this was the case but given there is no obligation for the sole trader to make super contributions I'm surprised.

Scenario : Borrow 25K to make a non concessional contribution to super fund and then claim a tax deduction for this up to non-concesional limit (currently 25K p/a), and then on an ogoing basis claim the interest on the borrowed 25K....

 

Yes. Check the legislation.

 

That inspires a lot of confidence

 

You would need to get specific legal advice or look at the legislation yourself

 

Thanks will do.

 

@Terry_w is a sole trader seen to be both an employer under division 290-B and an employee under SUPERANNUATION GUARANTEE (ADMINISTRATION) ACT 1992 - SECT 12?