Hi –
I have effectively 105% financed a property.
(Don’t ask me why – but it does make sense)
ie. financed the stamp duty, mortgage insurance into the deal.
Now, My accountant is telling me that I can only claim interest on a total value up to the purchase value of the house (ie. 100%). I’m not sure this makes sense since the loan is completely for the property.
Can anyone shed any light / rulings etc?
Thanks!
He doesn’t sound right to me.
Ask him for the reference or to write to the ATO for you – it may just be his belief.
Simon Macks
Residential and Commercial Finance Broker
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0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Get a new accountant.
I agree with Simon i think he is grossly mistaken.
On a separate note it sounds like you X collataleralised the loan which is certainly undesirable.
Cheers
Richard Taylor
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I am not an accountant, but think that you can claim the interest on any borrowings relating to the IP, and that would include purchase costs.
Terryw
Discover Home Loans
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Originally posted by Terryw:I am not an accountant, but think that you can claim the interest on any borrowings relating to the IP, and that would include purchase costs.
This is the very point I was querying on another thread. Do not these purchase costs form part of the capital cost base, thus reducing the CGT payable at sale? Does not the ATO say that borrowings for investment expenses that are “capital in nature” can not be claimed against regular income? Does not the application of these expenses to the capital cost base indicate they are “capital in nature”?
I am not an accountant. I wish one would answer this question for me… for free! Links to ATO statements and rulings would be good too.
Cheers, F. [cowboy2]
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.
Originally posted by dacium: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.
Dacium
Are you sure? Can you point out anywhere on that page where it says the interest on borrowings for expenses will not be deductible?
Terryw
Discover Home Loans
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Are there no accountants on this forum?
Originally posted by dacium: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.
That reference says nothing remotely to support what you claim.
You seem to be quite ready with opinions some of which have been grossly incorrect recently.
Please do not provide opinions unless you can back them up properly. There are beginners here who often take what we say as fact on these forums.
Simon Macks
Residential and Commercial Finance Broker
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0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Hi Opp
I agree that people need to verify things for themselves. So it is great when people can back up their argument with a useful refenece.
However, in the document you refer there is nothing on page 11 that refers to interest on funds borrowed for legas etc. Certainly legals are a capital expense and cannot be claimed against income (only CG).
The arguement here is if you borrow to pay legal expenses, stamp duty, etc is the interest deductible.
I say it is.
I can find no reference, maybe because it is generally accepted practice that interest on borrowings for investments is deductible. After all a house is a captial expense. You cannot pay $200,000 for a house and claim this $200,000, but you can borrow to buy it and claim the interest.
That’s my take. And I am no accountant either.
Terryw
Discover Home Loans
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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
Originally posted by dcoffey: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
Wrong mate. [blush2]
The question was not about claiming those costs.
it was about claiming the interest incurred in borrowing money for those costs.
If they are capital in nature then the interest is deductible.
Simon Macks
Residential and Commercial Finance Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Hi thinker, what I say he is saying that just because you financed the stamp duty and mortage insurance into deal can only claim interest on price of property. have I got what you are asking right. cheers[comp]
Please dont shoot me down yet [evo],
Been awhile since I have been here, but I was also told by my accountant that you can not make those interest claims either.
They come into base costings, and subtracted from lovely GST @ sale time.
Only interest on the actual loan regarding the actual property, will be deducted.
Again my opinion and knowledge & good reading all.
Totally agree with previous comments, read here & follow up with “Due Diligence”, dont take as riggy diggy fact.
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 insuranceYes 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
Originally posted by Opportunity In Everything: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 insuranceYes 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
Buying an IP is also capital in nature. Do you claim that interest too?
Simon Macks
Residential and Commercial Finance Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Guess i’m lucky that I only pay for the stamp duty
Opportunity in everythinng
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…”
Originally posted by AmandaBS: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 Amanda do you believe that the interest paid on the 105% borrowed is tax deductible?
The 5% covers all legals, stamp duties, inspections etc.
Thanks,
Simon Macks
Residential and Commercial Finance Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
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