Borrowing costs

Hi experts,

Just doing some sums. Could I please get a sanity check on some of the costs we have incurred during purchase of an investment property.

Can I assume that all of these are actually borrowing expenses:

• Bank/funder's lawyer title search fee
• Bank/funder's lawyer Titles Office fee on Mortgage
• Bank/funder's application fee
• Bank/funder's settlement fee
• Bank/funder valuation fee

Also, are any of these considered borrowing expenses:

• Bank/funder's lawyer professional costs on document preparation, preparing for settlement (whether PEXA or paper) and all necessary calls and emails
• Bank/funder's lawyer express post fee (disbursement cost)
• Bank/funder's lawyer PEXA fee
• Bank/funder's lawyer Titles Office fee on Transfer of Land
• Our conveyancer (on behalf of us) PEXA fee

Also, any costs that do not qualify as borrowing expenses out of the above then qualify as capital expenses (along with stamp duty, our conveyancer costs, etc.), right?

 

Yep, in personal names.

I’ve had a look at ato borrowing expenses pamphlet and it states that things like loan establishment fees, title search fees charged by lender, costs for preparing and filing mortgage documents (including solicitors’ fees), fees for a valuation required for a loan approval are all borrowing expenses (to be claimed over five years).

 

• Bank/funder's lawyer title search fee

Yes

• Bank/funder's lawyer Titles Office fee on Mortgage

Yes if registration of mortgage

• Bank/funder's application fee

Yes

• Bank/funder's settlement fee

Yes

• Bank/funder valuation fee

Yes

• Bank/funder's lawyer professional costs on document preparation, preparing for settlement (whether PEXA or paper) and all necessary calls and emails

Yes

• Bank/funder's lawyer express post fee (disbursement cost)

Yes

• Bank/funder's lawyer PEXA fee

Yes

• Bank/funder's lawyer Titles Office fee on Transfer of Land

No

• Our conveyancer (on behalf of us) PEXA fee

No

 

Thank you Terry!

 

Upon refinance, what happens to borrowing cost that's not yet claimed due to 5year pro-rata?

example
-Borrowed from Westpac 3years ago borrowing cost was $2000 and claimed $1200 (pro-rata 3/5 years) already. then refinanced to CBA

1) the $800 I haven't yet claimed yet, can I claim this over the remaining 2 years, as that was cost originally incurred even the Westpac loan is now closed?
2) or is this $800 deduction now 'lost' thus I can only claim whatever new cost to refinance to CBA over the new 5 year cycle?

 

never mind, found the answer on ATO website
"If you repay the loan early and in less than five years, you can claim a deduction for the balance of the borrowing expenses in the year the loan is repaid in full."

Rental properties 2021

 

The legislation says over 5 years or the life of the loan, whatever is shorter. So if you refinance before 5 years you can claim the remaining borrowing costs in that year

 

I am in a similar situation and just looking over my settlement statement from our solicitor.

1. there is a portion of the council rates that were paid.
2. "searches costs & outlays expended"
3. "Our Account"
4. "Government registration fees"
5. "PEXA Fees"

of the above, how would these be deducted?
thank you.

 

sounds like all capital costs other than the council rates which could be claimed if renting the property out

 

Are own conveyancer search fees deductible (council rate search, water board searches, land tax certificate, etc.)?

 

The following are capital expenses for acquisition and are not borrowing expenses. Costs you reimburse a lendes lawyers etc may also be borrowing expenses where they relate to the borrowing.

If the borrowing is for more than just the new IP then these costs may sometimes need to be apportioned.

 

No

 

A warning. Borrowing expenses are apportioned based on numbers of days in the first year. In the first and 6th year there will be unequal amounts usually and year 2, 3 and 4 and 5 may be 20% of the total sum. It is not 20% each year. This is a common mistake. Only a property acquired in June would have 5 equal years of 20% pa

 

What if the property stops being an investment before the 5th year? Can the outstanding borrowing cost be claimed then?

 

no
only if the loan is refinanced.

 

And when we say refinanced that means a change of lender. Changing the loan product with the same lender is not usually a suitable trigger. Paying off the loan even through discharge to a new lender is the fundamental requirement. If the occurs on adate that the property is let then thats sufficient. It could becomne a main residence a few days later.

Same applies with break costs. The test for their deductibility is the date they are incurred. Again, you can move into the property XX days later and its fine.

 

A loan is different to a mortgage. Refinancing means paying one loan out with another so it doesn't necessary require changing lenders.

 

But the ATO doenst accept a discharge of variable by changing to fixed eg 2 years with new account number etc is sufficient. Their view tends to consider borrowing costs will likely end when a former loan facility ends and a new borrowing commences and a trigger is sometimes the change of security holding. I did see one they accepted where the facility went from bank bills to resi mortgage and they were OK with that. Its a different form of loan. The loan term ended with the facility change. Its one they dont give a lot of guidance on. In the past 2 years it was a hot question when so many sought to refi from variable to 12-2 year fixed and they all wanted to claim deductions. I tried.

 

Yes, I would agree with the ATO there.