To clarify the Borrowing Costs issue:

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.
(Please visit our website to see an example.)

Frequently asked questions
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.

Back to the original question.
I can’t direct you to any rulings however my opinion is that all the interest on the borrowings used to fund the IP would be deductible as they directly relate to purchasing an income producing asset.
As explained above the LMI is a borrowing cost but the stamp duty would form part of the cost base of the property.

Hope this helps!

AmandaBS
http://www.propertydivas.com.au
FREE online Property Resources

“It is better to be inconspicuously wealthy, than to be ostentatiously poor…”

So the mortgage guys must be the clever ones that are apportioning their purchase costs as a deduction over 5 years.

Are they?

That is;
> establishment fees
> title search fees
> costs for preparing and filing mortgage
> mortgage broker fees
> stamp duty charged on the mortgage
> the cost obtaining a valuation or lender’s mortgage insurance

Yes all of these cost form part of the CGT cost base of the property but are they also deductable in this fashion over 5 years?

Who’s claiming their purchase cost as an apportioned deduction?

http://www.ato.gov.au/content/downloads/NAT1729-06.pdf (ATO Page number 14)

Opportunity in everythinng

Thanks for reply guys, did think of lending deposit but need to do some renos, bathroom,painting of unit and general tidyup.So thought 20% starts to blow out, so thought better if I buy keep control of things if know what I mean. plus when resell to her she gets fhog plus no stamp duty and I had a look at costs doing both ways, and in my caluations works out to be about same. I mainly wanted to know about what I was told about if I contracted it to her now for same price in 12mths time don’t have to pay capital gains? I’m trying to find best way around. thanks[biggrin][confused2]

This link seems to be pretty clear on the matter;

http://www.ato.gov.au/individuals/content.asp?doc=/content/66031.htm&page=8&H8

A great question. I had always assumed that these costs were all deductible.

Here is an extract from the site;

Acquisition and disposal costs

You cannot claim a deduction for the costs of acquiring or disposing of your rental property. Examples of expenses of this kind include the purchase cost of the property, conveyancing costs, advertising expenses and stamp duty on the transfer of the property (but not stamp duty on a lease of property – see Lease document expenses). However, these costs may form part of the cost base of the property for capital gains tax purposes.

DavidC

Your account is correct.

Think of it this way, you cannot loan money to pay for rates and expect to claim that interest. You can see here http://www.ato.gov.au/individuals/content.asp?doc=/content/66031.htm&page=9&H9 the basic overview. You cannot claim interest on anything but the actual loan covering the cost of the property, not coving the fees etc you had to pay.

this might be a silly question but here goes…
example – if my house was worth $260,000 and i owe $225,000 is a line of credit 80% of the home (260000) or 80% of $35000
i am not sure i fully understand any help would be great
thanx