• 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 and costs for preparing and filing mortgage documents - including mortgage broker fees and stamp duty charged on the mortgage.

    Borrowing expenses also include other costs that the lender requires you to incur as a condition of them lending you the money for the property - such as the costs of obtaining a valuation or lender's mortgage insurance if you borrow more than a certain percentage of the purchase price of the property.

    If you take out an insurance policy that provides for your loan on the property to be paid out in the event that you die or become disabled or unemployed, the premiums are not borrowing costs. Interest expenses are not borrowing expenses.

    If your total borrowing expenses are more than $100, the deduction is spread over five years or the term of the loan, whichever is less. If the total deductible borrowing expenses are $100 or less, they are fully deductible in the income year they are incurred.

    If you repay the loan early and in less than five 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: Apportionment of 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 $1,670 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 five years, or the period of the loan, whichever is the lesser. 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 2006, they would work out the borrowing expense deduction for the first year as follows:

    Year 1

    Borrowing
    expenses

    X

    number of
    relevant days in year

    number of days
    in 5 years

    =

    maximum
    amount for the
    income year

    X

    rental property loan
    total borrowings

    =

    deduction
    for year

     

    $1,670

    X

    349 days
    1,826 days

    =

    $319

    X

    $170,000
    $209,000

    =

    $259

    Their borrowing expense deductions for subsequent years would be worked out as follows:

     

    Borrowing
    expenses
    remaining

    X

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

    =

    maximum
    amount for the
    income year

    X

    rental property loan total borrowings

    =

    deduction
    for year

    Year 2
    (leap year)

    $1,351

    X

      366 days 
    1,477 days

    =

    $335

    X

    $170,000
    $209,000

    =

    $272

    Year 3

    $1,016

    X

      365 days 
    1,111 days

    =

    $334

    X

    $170,000
    $209,000

    =

    $272

    Year 4

    $682

    X

      365 days 
    746 days

    =

    $334

    X

    $170,000
    $209,000

    =

    $272

    Year 5

    $348

    X

      365 days 
    381 days

    =

    $333

    X

    $170,000
    $209,000

    =

    $271

    Year 6

    $15

    X

    16 days
    16 days

    =

    $15

    X

    $170,000
    $209,000

    =

    $12

    Last modified: 01 May 2008QC 27891