ATO Interpretative Decision
ATO ID 2001/534 (Withdrawn)
Income Tax
Rental Property Expenses - deductibility of loan establishment feesFOI status: may be released
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This ATO ID is withdrawn as it is a straight application of the law and does not contain an interpretative decision. Further information can also be found in Rental properties (NAT 1729)This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Can the taxpayer claim a deduction for loan establishment fees for borrowing money to purchase a rental property under section 25-25 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
Yes, the taxpayer can claim loan establishment fees as a borrowing expense under section 25-25 of the ITAA 1997 as the fees are a cost of borrowing money for the purpose of producing assessable income. The timing of the deduction is subject to further requirements.
Facts
The taxpayer purchased a rental property and incurred loan establishment fees exceeding $100 on the funds borrowed to purchase the property. The funds were borrowed for a term of 20 years.
Reasons for Decision
Section 25-25 of the ITAA 1997 provides that a taxpayer can deduct expenditure incurred in borrowing money to the extent that those funds are used for the purpose of producing assessable income. Loan establishment fees together with other borrowing expenses incurred (for example, lenders mortgage insurance, stamp duty on the mortgage contract, broker's commission, underwriter's fees) are borrowing costs under section 25-25 of the ITAA 1997.
Subsection 25-25(6) of the ITAA states that borrowing costs not exceeding $100 dollars are fully deductible in the year in which they are incurred. If the total borrowing costs exceeds $100, the deduction is spread over the period of the loan or 5 years - whichever is the shorter period. Subsection 25-25(4) of the ITAA 1997 sets out the process for calculating the deductible amount for an income year where the borrowing expenses exceed $100 dollars.
The taxpayer is entitled to claim a deduction for the loan establishment fees as a borrowing expense as they are a cost of borrowing money for the purpose of producing assessable income. As the fees are greater than $100 and the period of the loan is greater than 5 years, the amount deductible in the year of income is obtained by dividing the undeducted expenditure by the number of days remaining over 5 years and multiplying the result by the number of days in the loan period that are in the income year.
Date of decision: 18 July 2001Year of income: Year ended 30 June 2001
Legislative References:
Income Tax Assessment Act 1997
section 25-25
subsection 25-25(4)
subsection 25-25(6)
Keywords
Borrowing expenses
Deductions & expenses
Rental expenses
Rental property
ISSN: 1445-2782
| Date: | Version: | |
| 18 July 2001 | Original statement | |
| You are here | 6 June 2008 | Archived |
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