Private ruling: Rental property expenses
Published: November 2014
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Are you entitled to a deduction for your share of the borrowing expenses incurred? | A1: Yes. | Q2: Are you entitled to a deduction for your share of the annual package fee? | A2: Yes.

Relevant facts and circumstances: You purchased an investment property with your spouse. When opening the loan account you and your spouse were charged a number of lender fees and government charges. You and your spouse also incur an Annual Package Fee. The only loan connected to the package is the loan for the investment property.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 8-1 | Income Tax Assessment Act 1997 Section 25-25

Reasons for decision: Summary: Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income, except where the outgoings are of a capital, private or domestic nature. Subsection 25-25(1) of the ITAA 1997 states that you can deduct expenditure you incur for borrowing money, to the extent that you use the money for the purpose of producing assessable income. Borrowing expenses are only fully deductible in the year they were incurred if they do not exceed $100 (subsection 25-25(6) of the ITAA 1997). Where the borrowing expenses exceed $100, the deduction is spread over the period of the loan or five years, whichever is the shorter period. Subsection 25-25(4) of the ITAA 1997 sets out the process for calculating the deductible amount for an income year where the borrowing expenses exceed $100. Your borrowing expenses are deductible under section 25-25 of the ITAA 1997. However, as the borrowing expenses you incurred total more than $100, you are required to spread the deduction. More information about how to calculate claims for borrowing expenses totalling more than $100 can be found on our website ato.gov.au by searching for 'rental property borrowing expenses'. You have also incurred expenses for an annual package fee. As the amount is charged every year it is not considered to be a borrowing expense. However, as it is an expense incurred in gaining or producing your rental income, the fee is deductible under section 8-1 of the ITAA 1997. As you co-own the investment property, you are only entitled to claim for your share of the available deductions.