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Edited version of private advice
Authorisation Number: 1051747090023
Date of advice: 04 September 2020
Ruling
Subject: Renal deductions
Question
Is the monthly cost of the funding element of your investment property repayments an allowable deduction?
Answer
Yes. The expenses you incur relate to your rental property and are deductible in accordance with Taxation Ruling TR 93/16. This is because this amount represents an interest component and does not represent a capital component.
This ruling applies for the following period:
Year ending 30 June 2021
The scheme commences on:
1 July 2020
Relevant facts and circumstances
You have entered into a "Home Finance Agreement" (Finance Agreement) with the Funder (Company A), acting in its capacity as the principal of Company B (described as the originator/manager of the loan).
The Finance Agreement relates to a property located in Australia does not have a legal, equitable or beneficial interest in the property under Australian law (immediately after settlement it is taken to have management rights over the property which are not assignable. These rights cease upon final payment of the rental payments under the Finance Agreement). Company B is merely seeking to assist by coordinating between him/her and the Funder (clause X).
Under the Finance Agreement, you have been offered finance in the amount of $XXX.
Rental payments are due every month over the term of the facility (XY years).
The monthly rental payment of principal and Rental Facility Fee is approximately $AA.
The Finance Agreement set out various other fees and charge, such as an application fee, mortgage registration fee and a mortgage insurance amount (total fees and charge come to $BB).
An extract of your finance facility account shows the principal sum borrowed in the amount of $CC and the monthly rental payments being made in the sum of $DD.
The "Mortgage Facility Fee" component of this monthly repayment is charged to the account every month. These amounts represent the "finance charge" of X% per annum of the principal for the first couple of months of the loan.
The monthly cost of funding represents the Mortgage Facility Fee and/or the Rental Facility Fee.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 8-1
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