Interest is deductible if it is incurred:
- In order to create gross income
- For the carrying on of a business for generating gross income; or
- To buy shares by one company in a group of companies
- If incurred by a company (except qualifying companies)
Interest is only deductible when the borrowed funds are used to generate gross income (except for companies which are not qualifying companies where the interest is deductible in full). This only requires the expectation of income, e.g. when money is borrowed to buy shares, in the expectation of receiving dividends and dividends are not forthcoming, the interest is still deductible.
Deductibility of interest is also allowed when there is a loss for the year, e.g. rental properties.
If interest is incurred on a taxpayer’s home where the home is also used for business related activities, then interest incurred can be claimed as a home office expense.