Getting out of fixed rate mortgage

Looked into getting out of a fixed rate mortgage on an investment property and while it’s possible, it comes with a $13,000-$15,000 break out up-front fee. My question is...would that break-out fee be a tax deduction and if so could I claim the full amount in one year?
Thanks.

 

If the loan relates to the purchase of an income producing asset them it would generally be a borrowing cost and should be deductible in the year it is incurred if you change lenders.

 

Thanks...and if you stay with the same lender?

 

the question to ask is 'is the loan coming to an end and a new loan starting'. If so the borrowing expense will be deductible in full. If not it would be deductible over 5 years.

 

What technically makes a new loan?
New account number?

 

It seems the ATO might have a different interpretation of the law. s25-30 is about discharge of mortgage expenses and they may classify breaking a loan as falling under this category - even though the mortgage is not discharged.

In short seek tax advice.

 

I have a client who necessitated such a enquiry. A loan break fee relates to a specific contracted agreement concerning rate and need not discharge the loan. Borrowing expenses however look at the loan being discharged.

Lets use a hypthetical fixed rate loan. Its a 8% fixed rate and has 12mths to go of the three year term. The original loan had borrowing expenses of $6k and are being deducted at $100 a month. The break fee should be deductible as the property is being used for investment at the time the loan is broken. If the property use was to become private a month later this is not a concern. The borrowing expenses are not immediately deductible as the loan is not discharged but has just reverted to variable. If it was to be discharged to a new lender the residual borrowing expense should be deductible also.

This analogy is not unike assuming borrowing expenses can be written off over 3 rather than 5 years for a 3 year fixed rate loan. They are written off over 5 years (60mths) unless discharged earlier when the residual is claimed. If ashort term loan and discharge are planned then writing off borrowing expenses over a shorter peiod may be prudent. The fact a loan is a 3 year fixed rate does not mean the loan is being discharged in 3 years.

Most loan terms are written as 25-30 years but can be shorter eg older people etc.