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Can you claim interest on loans as an expense?

by , 03 June 2013
Liza wrote into our Accounting and Tax club in May, and asked if she could claim her loan deductions as an expense for tax purposes. One of our tax experts, Alan Lewis, a Tax Advocate and independent tax consultant, wrote in with advice on how to handle the situation.

The amazing part of the Accounting and Tax Club is that experts and fellow taxpayers contribute to answering your questions… and you don't pay a cent! Let's have a look at Liza's question in detail (I'll also tell you how to join the club!).

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Can Liza reflect the interest costs as a finance cost expense?

Liza's a sole proprietor who borrowed R500 000 on her bond/personal loan to purchase a flower shop business as a going concern.  Would she be able reflect the bond repayments (capital and interest (finance costs)) through her business?
 
Would she be able to reflect the interest costs as a finance cost expense? Let's see what the experts had to say about this…


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Is interest payable in respect of the purchase price deductible?

To finance the purchase price, Liza used the money from her bond. The flower shop constitutes a capital asset that'll generate income. So the purchase price is an expense of a capital nature. This doesn't  qualify as a deduction for income tax purposes. In my opinion, the interest payable for the purchase price also wouldn't be deductible.

Sorry Liza, in this case, you can't claim. But have a look at '30 Business boosting tax breaks for your small business'. It tells you all the tricks and tips of when you can claim!

P.S  Need an immediate solution to a pressing Accountancy question? Check out the peer-to-peer Accounting and Tax club website. Join for free, and you can ask and answer questions on the club site immediately! Join the community now.



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Comments
3 comments


Ian Meaker 2013-06-03 13:55:55

Hi Phillip

Can you go into more detail around your thinking on the interest expense?

And why this differs from the tax scenario of purchasing a property and generating income via rentals, and off-setting the interest expense against income received?

Regards
Ian Meaker

Ian Meaker 2013-06-03 13:55:54

Hi Phillip

Can you go into more detail around your thinking on the interest expense?

And why this differs from the tax scenario of purchasing a property and generating income via rentals, and off-setting the interest expense against income received?

Regards
Ian Meaker

Ian Meaker 2013-06-03 13:55:54

Hi Phillip

Can you go into more detail around your thinking on the interest expense?

And why this differs from the tax scenario of purchasing a property and generating income via rentals, and off-setting the interest expense against income received?

Regards
Ian Meaker

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