Is interest on bonds, credit cards, bank overdrafts deductible against interest earned in a personal capacity. Would you declare nett interest on the tax return.
Important:
This answer is based on tax law year ending 28 February 2017.
Answer:
It would not be correct to only declare the net amount. The interest incurred, based on the facts, will not meet the requirement for deduction.
The amount of interest that, in terms of the agreement between the taxpayer and the financial institution (or third party), accrues to the taxpayer is included in gross income – in terms of section 24J(3) of the Act.
In this instance, the holder of that instrument (the individual) does, throughout any period during a year of assessment during which that holder holds that instrument, factually have a right to require the redemption of that instrument at any time during that period. The principles are however the same.
The principle, with regard to any interest-bearing debt (we leave instruments out for the moment) is that an amount of interest incurred during a year of assessment, must be deducted from the income of that person derived from carrying on any trade, if that amount is incurred in the production of the income. See section 24J(2) of the income Tax Act in this regard.
We submit that what is relevant here is “the income of that person derived from carrying on any trade” requirement. In order for the taxpayer to make a deduction it is necessary that the taxpayer must be able to meet the burden of proof that a trade was being carried on, and then that the amount of the expense was incurred in the production of the income (the interest) derived from that trade.
Interest in your scenario may in actual fact have been incurred for private purposes and the deduction would then be denied – section 23(a).