Are personal loans tax deductible?

By Harper Banks

If you belong to a medical aid scheme or you have a retirement fund, you can claim back a portion of your contributions from your annual taxes because these products are tax deductible.

We have a look at whether personal loans are tax deductible, and we find out why the South African Revenue Service (SARS) offers tax deductions in the first place.

Tip: Use our income tax calculator to find out how much tax you will pay on your ideal salary.

Personal loans aren’t tax deductible, unless…  

According to Bobby Wessels, associate at AJM Tax, the capital amount of a personal loan will not be tax deductible because it’s a capital expense, and it doesn’t meet the requirements of the Income Tax Act.

He explains that the only deduction that can be claimed when it comes to a loan is the interest that’s paid on it. However, he adds that this will only be deductible if the loan was incurred for business purposes and it satisfies the requirement of being “in the production of income”.

“If a personal loan is incurred for personal purposes, it will never satisfy the requirement of being in the production of income and you will not be able to claim anything back from SARS – not even the interest,” says Wessels.

On the other hand, if you decide to use a personal loan to boost your business, then you will be able to claim against the interest that’s paid.

READ MORE: Personal loan or business loan? The best way to finance your business

Why are certain expenses tax deductible?

SARS wants to encourage South Africans to save for their retirement and take care of their medical expenses. By making these expenses tax deductible, they are encouraging and rewarding you for protecting your financial future.

During tax season, which usually starts around July every year, you will have the opportunity to submit your income tax forms and apply for deductions. SARS will then settle this bill with you.

When submitting your returns, don’t forget these deductions.

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