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Warning! Don't try and claim these three types of interest as a deduction

by , 26 May 2014
We all know there are instances where you can claim interest as a tax deduction.

But, what you may not know is you can't claim interest all the time. There are times where it's against the law to claim interest as a deduction. It's important you know what these instances are, so you can comply and avoid SARS penalties.

To help you understand this better, our tax experts give you three examples of when you can't claim interest as a deduction. Let's take a look...

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Legally pay less tax 

139 reasons SARS doesn't want you to see this

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Don't know when not to claim interest as a deduction? These three scenarios will help you out

Example #1: Let's say you raise money to buy equipment to use in your manufacturing business. But, you don't use the equipment right away.

Tax law says until you actually start using the equipment, you can't deduct the interest on the finance.

Example #2: Let's say your business is struggling. Fortunately, your bank grants you an overdraft.

You then use some of the money to finance your business, but one of your shareholders takes half of it (through an interest free debit loan balance) to pay for his children's school fees.

Experts behind the Practical Tax Loose Leaf Service say in this case, you can't deduct the portion of interest that relates to the money taken by your shareholder.

That's not all. There's one more instance when you can't claim interest as a deduction.

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One more example of when you can't claim interest as a deduction

Example #3: Shareholders put money into a company, even though the company doesn't need it.

In this case, SARS may consider the interest on the shareholder loan accounts unproductive. This means you can't claim interest as a deduction.

We hope these three examples have shed some light about when you can't claim interest as a deduction. If you want to examples of when you CAN claim interest as a deduction, check out the Practical Tax Loose Leaf Service.

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