There are three types of expenses you may incur for your rental property that may be claimed over a number of income years:
- borrowing expenses
- amounts for decline in value of depreciating assets (allowed only in certain circumstances)
- capital works deductions
These are expenses directly incurred in taking out a loan for the property. They include:
- loan establishment fees
- title search fees charged by your lender
- costs for preparing and filing mortgage documents
- mortgage broker fees
- stamp duty charged on the mortgage
- fees for a valuation required for loan approval
- lender's mortgage insurance billed to the borrower.
The following are not borrowing expenses:
- insurance policy premiums on a policy that provides for your loan on the property to be paid out in the event that you die or become disabled or unemployed
- interest expenses
- stamp duty charged on the transfer of the property
- stamp duty incurred to acquire a leasehold interest in property (such as an ACT 99-year Crown lease).
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 the loan is repaid in full.
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.