Deductibility of interest and fees on moneys borrowed to make superannuation contributions.

Are interest and fees incurred on money borrowed to make superannuation contributions allowable deductions under either section 8-1 or section 25-25 of the Income Tax Assessment Act 1997 (ITAA 1997)?

No, the interest and fees incurred on money borrowed to make superannuation contributions are not allowable deductions under either section 8-1 or section 25-25 of the ITAA 1997.

The taxpayer borrowed money against rental properties jointly owned by themselves and their spouse, to make superannuation contributions for the purpose of providing superannuation benefits for themselves and their spouse.

Section 8-1 of the ITAA 1997 allows a deduction for interest to the extent to which it is incurred in gaining or producing assessable income or is necessarily incurred in carrying on a business for that purpose. Section 8-1 of the ITAA 1997 does not allow a deduction if another provision of the ITAA 1997 or the Income Tax Assessment Act 1936 (ITAA 1936) prevents a deduction.

The deductibility of interest is determined by the use for which the borrowed money is intended (Taxation Ruling TR 95/25) and not by the security given for the borrowed money (Taxation Determination TD 93/13).

Section 25-25 of the ITAA 1997 allows a deduction for expenditure incurred in borrowing money to the extent that the money is used for the purpose of producing assessable income.

Subsection 67AAA(1) of the ITAA 1936 denies a deduction for interest and other borrowing expenses incurred in relation to a loan or other financing arrangement that was entered into after 18 August 1992 and which was used to finance personal superannuation contributions.

As the borrowed moneys will be used by the taxpayer to make superannuation contributions to provide superannuation benefits for themselves and their spouse, subsection 67AAA(1) of the ITAA 1936 denies a deduction for the interest and fees which may otherwise be deductible under either section 8-1 or section 25-25 of the ITAA 1997.

The fact that the taxpayer will use the rental properties as security for the borrowed money does not make the interest and fees incurred on these money deductible against their rental income.