Hi I have had a search on this topic but would like to discuss a bit further. I've been advised by my accountant (and a second one) that Buyers Agents fees are capital costs and therefore not deductible against income tax. From what I can see on other posts on this topic it agree's with this view. Why is then that quite a few BA's advertise that their costs are deducitbile ? Is there a grey area here?
Your accountant is 100% correct. BA fees are not deductible. Even if they were a registered tax agent and BA the fee would not be deductible as it relates to services and advice in acquiring a (future) income producing property. That isnt deductible under general tax principles. ATO Ruling ID 2009/9 contains the ATO views. (That ruling was in respect of an apparent scheme that would mask BA fees as a PM expense). A red flag moment - If a BA says the fee is tax deductible find a honest BA who wont tell porkies.
BA fees are capital in nature and form part of the cost base. However if funds to pay the fee are drawn from a deductible source, eg LOC or investment equity split, then the interest on the source is generally deductible.
Thanks everyone much appreciated, only thing I can think of is they are referring to this "However if funds to pay the fee are drawn from a deductible source, eg LOC or investment equity split, then the interest on the source is generally deductible." and also agree that it's a red flag on the BA in general.
Agree. Its important that all buyers know two things about BA Fees: 1. If borrowed money is used the interest should be deductible ; and 2. The cost may well be a CGT capital cost but remember that this adds to the cost base along with stamp duty, legals etc and will reduce the future capital gain. The cost isn't just "lost". And importantly buyers need to assess the professional merits of the value a BA can deliver. Identify properties, find, filter and negotiate.
Yes it might be some confusion between claiming the cost v claiming the interest on money borrowed to pay for the cost - often happens.
As others have said, the BA fees are not deductible UNTIL the property is sold, when it is used in the calculation of the cost base. Interest on borrowings for the BA fees is deductible. See ATO view and reasoning for this in the attached.
Not if the purchase contract falls through. 1. No CGT asset acquired, no cost base to capitalise. 2. No interest deduction because funds not used in earning assessable income - the asset is the source of a passive investor's income and the funds have not been used in relation to acquiring or using that asset. The BA fees are preliminary expenditure to the income exercise. Mind you, the preliminary expenditure argument may also be applied to BA fees even if the property is acquired if there is a 'property search' component.
Well obviously you cant claim against an asset you dont own. Same for lost legal and other related capital costs if you dont proceed with purchase.
