Financing costs on loans to pay superannuation contribution

Deductibility of financing costs for superannuation
Contributions

Section 26-80 provides that a financing cost connected with a contribution that a taxpayer makes to a superannuation plan is deductible under this Act only if the contribution is deductible under Subdiv 290-B. From 1 July 2007, an employer may be entitled to a deduction for all contributions to a complying superannuation fund or an RSA on behalf of an employee if the rules for employer contributions in Subdiv 290-B are satisfied. Consequently, no deduction is allowed under s 26-80 or any other provision of the Act (eg s 8-1) for financing costs incurred on borrowings to finance personal superannuation contributions.

A “financing cost connected with a contribution” is expenditure incurred to the extent that it relates to obtaining finance to make the contribution. It includes interest and payments in the nature of interest and expenses of borrowing.

A “superannuation plan” means a superannuation fund, an approved deposit fund or an RSA

Conditions for deducting contributions

Generally, an employer can deduct a contribution made to a superannuation fund or an RSA where these three conditions in Subdiv 290-B are satisfied:

• • the person for whom the contribution is made is an employee, is engaged in producing the employer’s assessable income or is an Australian resident engaged in the employer’s business
  • if the contribution is made to a superannuation fund, the fund is a complying superannuation fund

and

• the employer makes the contribution on or before the day that is 28 days after the end of the month in which the employee turns 75, or in compliance with an industrial law, in which case only the amount of the contribution required by the industrial law is deductible.

Who can contribute to a superannuation fund?

The rules on acceptance of contributions by a superannuation fund are set out in the Superannuation Industry (Supervision) Regulations 1994 (SISR) reg 7.04. The effect of these rules, from 1 July 2004, is as follows.

Personal contributions by a member

A person under age 65 can make personal contributions without restrictions. A person who has reached age 65, but not age 75, can contribute if the person has been “gainfully employed on at least a part-time basis” during the relevant financial year. A superannuation fund cannot accept contributions from a person who has reached age 75.

“Gainfully employed” means being employed or self-employed for gain or reward in any business, trade, profession, vocation, calling, occupation or employment. A person is “gainfully employed on a part-time basis” during a financial year if the person has worked at least 40 hours in a period of not more than 30 consecutive days in the year.

Similar rules apply where personal contributions are made to an RSA.