Borrowing to pay your tax?

The idea of using borrowed money to pay your tax is an alluring prospect, particularly if those borrowings can become 'tax deductible'.

There are many creative and complex tax strategies promoted that aim to achieve this, but would they stand up to the scrutiny of the Tax Office if they come knocking? The Tax Office have indicated a deduction for loan interest can be claimed, but only in specific situations, which translates to, not in every case.

The anti-avoidance provisions of tax law specifically exclude deductions arising from complex arrangements where the primary or dominant purpose of the strategy is to generate a tax deduction. This provision places the onus on the taxpayer rather than the Tax Office to prove their case in the event of an audit.

As a Doctor you are likely to be exposed to a number of strategies broadly referred to as 'tax planning' over your career. We recommend asking your advisor to document their advice in writing, wether the proposed strategy has been tested by the courts, what literature has been released on the topic and finally how many similar clients have implemented such a strategy.

It’s important to remember that no strategy is a 'one size fits all' and what’s legitimately claimable for one might not be for another.

If you would like further information we would be pleased to discuss your individual situation as the consequences of getting this wrong can be far worse than the gain.