Private ruling: Borrowing expenses
Published: January 2012
Ruling period: Year ended 30 June 2010 | Year ended 30 June 2011
Date scheme commenced: 1 July 2009

Ruling: Q1: Is 50% of the fee you incurred deductible as a borrowing expense over 5 years? | A1: No.

Relevant facts and circumstances: You and your spouse engaged a financial services company to create an investment strategy. You and your spouse travelled by plane to the office of the company to discuss the best investment alternative available. The company paid for the airline tickets and accommodation. You and your spouse decided to invest in the residential housing market. You and your spouse were referred to a real estate agency by the company. The agency arranged the sale of a block of land to you and your spouse and provided a referral to a builder. You and your spouse did not pay any money to the real estate agent. You and your spouse paid the builder directly for the construction of the property. Finance for the property was obtained through two financial institutions. These two banks were selected by the financial services company after analysis of various financiers to obtain the best deal available. The financial services company issued an invoice to you and your spouse for their services. A break down of the costs was not provided on the invoice. An itemised invoice was requested from the company but they were unable to provide this documentation. You and your spouse have been advised by the company that the whole of the fee is deductible over 5 years as a borrowing expense. The fee charged by the company is at a standard rate to all clients, regardless of whether or not they decide to undertake the investment strategy.


Reasons for decision: Summary: Section 25-25 of the Income Tax Assessment Act 1997 provides that you can claim deductions for expenses you incur for borrowing money to the extent you use the money for the purpose of producing assessable income. Borrowing costs which are incurred for the purpose of gaining income from investments are allowable deductions. These costs may consist of legal expenses, stamp duty, valuation and survey fees, broker's commission etc. They are deductible to the extent that the borrowed monies are used during that income year for the purpose of producing income. If your total borrowing expenses are more than $100, the deduction is spread over five years or the term of the loan, whichever is less. In your case you incurred a fee which was paid to a financial services company. The company is unable to provide an itemised invoice to reflect a break down of the cost of each service included in the fee. Further, the fee is a standard charge to clientele regardless of whether or not the client decides to proceed with the proposed investment strategy. The fee paid to the company is considered to be an un-dissected, lump sum amount. There is no reasonable basis upon which to apportion the fee to reflect the amount attributable to the company sourcing the financiers for your investment venture. Therefore, no part of the fee is deductible as a borrowing expense.

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