Kindly confirm if the bond interest can be deducted against the rental income of the property in the director's personal name. The director wants to deduct the interest against the property in his personal name to reduce tax payable in his personal name.
Author: Graham Walker
Important:
This answer is based on tax law year ending 28 February 2021.
Answer:
Relevant law: Step 1: s 11(a) of the Income Tax Act No.58 of 1962 (“ITA”). Other resources: • N/A Comment on member’s query: If we understand your facts correctly, the director used the bond finance from his personal property to advance funds to a company which he is a director of. If that loan account is interest bearing, then the interest income from the loan account could be off-set in his personal capacity, against the bond interest. The company would then have debit interest to off-set against the rental income from the new property purchased. The above guidance should assist you to reach the correct decision. Additional If the loan to the company is interest free a risk exists that SARS could hold that the interest cost is unproductive. We provide the case below which doesn’t mirror your facts but it does extensively ventilate the issues at hand: L Taxpayer v Commissioner for the South African Revenue Service (A124/2017) [2018] ZAWCHC 23; [2018] 2 All SA 478 (WCC) (27 February 2018).