To claim a deduction for interest expenses you incur, you must meet all of the following conditions:
- You must loan (borrow) the funds and incur the interest expenses to buy an item or pay for a service you use to perform your work duties.
- You must have a record of your expenses and the use of the loan funds.
- If you use the loan to purchase private items and services as well, you must apportion the interest expenses and only claim the work-related portion.
For further information on the general principles regarding the deductibility of interest expenses, see paragraphs 2 and 3 of TR 95/25 Income tax: deductions for interest under section 8-1 of the Income Tax Assessment Act 1997 following FC of T v. Roberts: FC of T v. Smith.
- To claim a deduction for a transaction fee you incur, you must meet all of the following conditions:
- you incur the transaction fee
- you use the item or service the transaction fee relates to, to perform your work duties
- you have a record of your expenses and the use of the item of service for work purposes.
- You can only claim a deduction for the portion of the transaction fee that relates to your work-related use of the item or service.
You can't claim:
- account keeping fees or overdraft fees
- interest and transaction fee expenses that someone else pays for
- interest and transaction fee expenses you incur on items for private purposes.
You can claim expenses such as:
- bank fees
- transaction fees
- interest you incur on money you borrow to pay for work-related expenses.
You must be able to show that the expense relates specifically to the item you buy for work and that you incur the cost. You can only claim the interest and transaction fee expenses to the extent that they relate to the work item.
You need to apportion expenses if you use the items you buy for work and private purposes.
Example: transaction fees
Adrienne buys deductible work-related books from an international retailer and is charged an international transaction fee by her bank. Because the books are a work-related expense, Adrienne can also claim the cost of the international transaction fee imposed by her bank.End of example
You can calculate your deduction for interest expenses by adding up the amounts for interest shown on your loan statements only if you borrow the funds solely to purchase items or services you use for work-related purposes.
If you borrow funds to buy items or services you use for private purposes and work-related purposes, you must apportion your interest expenses. How you apportion interest expenses depends on:
- the type of loan you have
- when you used the loan to purchase work-related services and items.
For information on how to calculate your deductible interest expenses, see paragraphs 53 to 73 in TR 2000/2 Income tax: deductibility of interest on moneys drawn down under line of credit facilities and redraw facilities.Deductions for interest and transaction fee expenses, you incur on items you buy for work.