Hi,
I'm a little confused about Deductions on Purchasing Costs. I read in places that deductions on Purchasing Costs can be deducted over the first 5 years. These include, valuation fees, stamp duty on mortgage, bank application fees, mortgage insurance, consultant fees etc. So I can claim 1/5 of the total for the first 5 years?
I was under the impression that purchase costs cannot be claimed until you sell the property? So what can only be claimed when you sell the property and therefore lower your taxable capitial gain?
Cheers
Troy
What state are you in? I'm in VIC and have been told I cannot claim purchasing costs until the day I sell
If you find out otherwise please let us know.
Hello Troy and jc1979
Some of the costs of buying an IP are tax deductible over a period of 5 years and some just form part of the cost base for calculating the capital gain if you sell. This is not dependent on the state you live in as it's an ATO ruling.
Acquisition costs form part of the cost base but borrowing costs are deductible over a five year period or the term of the loan, whichever is shorter.
Here is a link to the ATO site about this topic
http://www.ato.gov.au/individuals/content.asp?doc=/content/66031.htm&page=8&H8
Hope this helps
ElkaHi Troy,
The following is an extract of a document off our website that should clear things up for you:
BORROWING COSTS
Under Section 25-25 of the Income Tax Assessment Act you can deduct expenditure incurred for borrowing money, to the extent that the borrowed money is used for the purpose of producing assessable income.
What is classed as a Borrowing Cost?
- Loan establishment fee
- Mortgage registration fees
- Title search fees
- Mortgage brokers fee/commission
- Stamp duty on the mortgage
- Valuation fee charged by the lender
- Lenders Mortgage Insurance (LMI)
- Legal costs in relation to the mortgage
- Underwriter’s fees
How do I claim Borrowing costs in my Income Tax Return?
Your Accountant will calculate this for you.
In most circumstances the total sum of all borrowing costs is spread over the period of the loan or 5 years, whichever is the shortest. So if you repay/refinance the loan within 5 years, then the remaining balance of the borrowing costs are claimed in that year. Borrowing costs not exceeding $100 are fully tax deductible in the year in which they are paid.
ExampleJan and Bob borrowed $140000 to purchase an investment property on 15/09/2004 and incurred the following Borrowing Costs;
Mortgage registration fee 106
Stamp duty on mortgage 602
Title search fee 20
Establishment fee 785
Total Borrowing Costs $1513
Claim as follows;
1. 2004 $1513 x 288 = $238
5 365
2. 2005 $1513 x 365 = $303
5 365
3. 2006 $1513 x 365 = $303
5 365
4.. 2007 $1513 x 365 = $303
5 365
5. 2008 $1513 x 366 = $303
5 366
6. 2009 $1513 x 77 = $ 63
5 365
TOTAL BORROWING COSTS = $1513
Q. What is LMI?A. Lenders mortgage insurance (LMI) is a one off payment charged by some financiers as a condition of loan approval. It protects the lender from loss in the event that the borrower defaults on the loan. LMI is therefore a borrowing cost and is not able to be claimed outright as a tax deduction under Sec 8-1 of the ITAA.
Q. Can I write-off the stamp duty on transferring the title on purchasing a rental property as borrowing costs?A. NO! The costs associated with the transfer of title are “acquisition” costs that are payable regardless of whether or not money was borrowed to fund the purchase. Stamp duty on title transfer forms part of the cost base for Capital Gains Tax purposes.
Great information. thank you very much.
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