• Borrowing expenses

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    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

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    These are expenses directly incurred in taking out a loan for the property. They include loan establishment fees, title search fees, costs for preparing and filing mortgage documents, stamp duty charged on registration of a mortgage and valuation fees if the lender required a valuation be obtained as a condition of them lending you the money. Interest expenses are not borrowing expenses.

    If the total cost of these items is over $100, the deduction is spread over 5 years or the term of the loan, whichever is less. If the total cost is $100 or less, it is fully deductible in the first year.

    If you repay the loan early and in less than 5 years, you can claim a deduction for the balance of the borrowing expenses in the year of repayment.

    If you obtained the loan part way through the income year, the deduction for the first year will be apportioned according to the number of days in the year that you had the loan.

    Example

    Borrowing expenses

    In order to secure a 20-year loan of $209 000 to purchase a rental property for $170 000 and a private motor vehicle for $39 000, the Hitchmans paid a total of $1670 in establishment fees, valuation fees and stamp duty on the loan. As the Hitchmans' borrowing expenses are more than $100, they must be apportioned over 5 years, or the period of the loan, whichever is less. Also, because the loan was to be used for both income producing and non-income producing purposes, only the income producing portion of the borrowing expenses is deductible. As they obtained the loan on 17 July 2001, the borrowing expense deduction for the first year would be worked out as follows:

    Borrowing expenses

    x

    rental property loan
    total borrowings

    x

    number of relevant days in year
    number of days in 5 years

    Year 1

    $1670

    x

    $170 000
    $209 000

    x

      349 days  
    1826 days

    = $260

    Last modified: 18 Jul 2008QC 16578