Private ruling: Borrowing expenses
Published: September 2011
Ruling period: Year ended 30 June 2011 | Year ended 30 June 2012 | Year ended 30 June 2013
Date scheme commenced: 1 July 2010

Ruling: Q1: Are you entitled to deduct the application and switch fees as a borrowing expense, with the deduction spread over 3 years? | A1: Yes.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You have an investment property that was covered by a single investment loan. The loan was taken out several years ago under a fixed rate and during the year ended 30 June 2011, the loan matured. The value of the loan is $xxx and you incurred a $xxx switch fee to obtain an interest only fixed rate for a period of 3 years. You have requested an additional loan from your bank to cover council and other large fees associated with the property. The value of this loan is $xxx and it was taken out during the year ended 30 June 2011. You incurred an application fee of $xxx for this loan and it has been taken out for a period of 3 years. You contend that you can claim the $xxx of expenses over a 5 year period. The application and switch fees total more than $100.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 25-25.

Reasons for decision: Summary: Section 25-25 of the Income Tax Assessment Act 1997 allows a deduction for certain borrowing expenses. Where the total borrowing costs exceed $100, the claim must be apportioned over the period of the loan or five years, whichever is the lesser. Borrowing expenses such as establishment fees, legal expenses, stamp duty on the mortgage, valuation and survey fees associated with the borrowing are deductible to the extent that the borrowed monies are actually or intended to be used during the income year for income producing purposes. In your situation, you are entitled to claim a deduction, apportioned over 3 years, for the application and switch fees because they are accepted as being a cost of borrowing money for the purpose of producing assessable income.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.