Capital costs are costs associate with the house/land and its purchase and includes the house itself, fixtures and fittings and legals and stamp duty associated with the purchase of these.
Borrowing costs would be application fees, LMI, registration of mortgage, stamp duty on the loan (now mostly abolished I think), stamp duty on LMI.
say you borrow $95,000 on a $100,000 purchase. LMI would be payable and probably application fees (maybe) and some of registration fees etc. You may end up borrowing $98,000 with $3,000 being extra for the borrowing costs.
You would generally be able to claim the interest on the full $98,000.
But you could also claim the costs of the borrowing costs too. These are $3,000 divided over 5 years (or the term of the loan if shorter – eg you may sell or refinance). This would mean you have an extra $600 to claim each year for the first 5.Stamp duty is a capital cost so you cannot claim it against income, but when you sell and make a profit (or loss) it can be taken into account and claimed then. You could borrow the stamp duty and claim the interest on this too – generally. so in the above eg, you may borrow another $4,000 for stamp duty and have a total loan of $102,000 and the interest on this would be deductible. (you may be getting part of this loan from another LOC or using a second property as security).
In the ACT, and maybe NT too?? the land is lease hold so there it is a bit different there. You pay stamp duty on the lease to the government and can claim this against your income because it is not a capital cost. I haven't never purchased in Act so am not totally sure how this works.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Terryw wrote:say you borrow $95,000 on a $100,000 purchase. LMI would be payable and probably application fees (maybe) and some of registration fees etc. You may end up borrowing $98,000 with $3,000 being extra for the borrowing costs.
You would generally be able to claim the interest on the full $98,000.
But you could also claim the costs of the borrowing costs too. These are $3,000 divided over 5 years (or the term of the loan if shorter – eg you may sell or refinance). This would mean you have an extra $600 to claim each year for the first 5.Stamp duty is a capital cost so you cannot claim it against income, but when you sell and make a profit (or loss) it can be taken into account and claimed then. You could borrow the stamp duty and claim the interest on this too – generally. so in the above eg, you may borrow another $4,000 for stamp duty and have a total loan of $102,000 and the interest on this would be deductible. (you may be getting part of this loan from another LOC or using a second property as security).
Hi Terry,
thanks for your response. I gota be honest ,I am bit concerned with the word generally in your reply.I understand the difference between the capital costs and borrowing costs now. But I think there is still a grey line which costs falls in which category when it comes to tax.
Let's say I want to buy 300K IP in Victoria,
If I use LOC of (79.5K) which I primary be using to pay stamp duty and borrowing costs as well as deposit. I can't claim that in tax not even over the 5 years.
But If I borrow lets say 95% of 300K property and that extra i m borrowing for paying borrowing costs, LMI, can be claimed over 5 years in tax, am I correct.
If I have got it right, then there is no way I can claim the stamp duty in tax, only if I sell and CGT comes in play. So eventually we are looking that stamp duty will not be claimable in tax. but if I borrow more from lendes (if they allow) to cover my borrowing costs, LMI can be claimed over 5 years.
thanks
Saurinhey guys im sort of new to mortgage brokering but wouldnt a line of credit, split between a fixed rate for the current loan and a variable rate for the new property be more suitable. that way they can save money on having seperate loans, like fees and other stuff. IM not to sure about the tax implications in this but id assume you could use all the fees and interest paid associated with this loan to offset agaisnt any income on the investment. but like i said i am new to mortage brokering so please be gentle with me. hahahaha.
You must be logged in to reply to this topic. If you don't have an account, you can register here.
