Borrowing Expenses – Investment Properties
You can claim borrowing expenses greater than $100 over a five-year period or over the life of the loan whichever is the least. You can claim all the following borrowing costs
- stamp duty charged on mortgage (note this is not the stamp duty on purchase of the property)
- loan establishment fees
- title search fees charged by the lender
- costs for preparing and filing the mortgage documents
- mortgage broker fees
- valuation fees for loan approval
- lender’s mortgage insurance
It is important in the first year that you don’t claim the full amount of the borrowing costs, but you will need to apportion the first years borrowing costs over the number of days between the date you took out the loan and the end of that particular financial year. Another common mistake is either not claiming the borrowing costs at all or claiming them all in the first year the loan is taken out.
If a loan has been taken out and has a mix of private and investment/business components (something we recommend you really try to avoid and work together with your accountant and mortgage broker to prevent getting into this sticky situation) then the borrowing expenses also need apportioned.
Apportionment of borrowing costs
Maxine borrowed $300,000 on 15 July 2017 for which 50% ($150,000) was used to acquire an investment property. She used the balance of $150,000 to buy a Porsche Cayman S (“lucky girl”) so she could experience the wonders of the Great Ocean Road in her mean machine.
Her borrowing costs associated with the loan were $5,000. As 50% of her loan was used for income producing purposes only that portion of the borrowing costs will be deductible to her over a five-calendar year period.
For your Property Tax and Property Accounting needs in Melbourne and throughout Australia gives us a call. We are Property Tax Specialists dealing with property investors and property developers.