Promotion/Refinance Allowance

Banks sometimes offer a promotion of say $1500 as an incentive to refinance. I am trying to workout where these funds are allocated for tax purposes ie does ATO see this as income?

Ie say total refinance cost: $1300, promotion fee $1500. Is the surplus $200 seen as income(same as rent) or does this $1500 not come into the tax calculation at all? Hope my question is clear and someone can answer. Thanks in advance.

 

If it relates to an investment property it would be income - the full $1500

 

Thank for the quick response Terry.

 

Its NOT income. The amount is a receipt to offset expected refinance costs. If the taxpayer refinances and the borrowing expenses are deductible the credit would reduce the deductible sum (deducted over 5 years).

Its like a reimbursement from an employer. When that occurs the receipt ends the taxpayer ability to claim a deduction. Its sort-of like income in that is reduces an available deduction but its not income. If the taxpayer refinances their own home for a better rate / deal the sum received and any fees are both non-deductible.

Where it relates 100% to a IP :
1. The former loan may have a balancing adjustment relating to undeducted costs
2. The new loan may have fees. Deduct the $1500 then...
3. Claim new (net) borrowing expenses over 5 years

 

But refinance costs are only about $350. This is way over and above that level. This is really a payment to bring a loan across.

Nevertheless you may be right Paul.

 

Here is my initial thoughts, however any missing detail could change the outcome. Always dangerous in making assumptions about the facts:

If it is a fixed $1500 incentive then it is not a reimbursement because the taxpayer is not required to vouch for the expense nor refund any unexpended amount.

If the $1500 is received in the same year as the expense then the deduction is reduced to nil since it is a recoupment of that expense under an arrangement. You have in fact not incurred any expense that year.

The $200 surplus:

1. It is not ordinary income, not being associated with ordinary proceeds of a business.

2. It is not an assessable recoupment. It is not provided by way of insurance or indemnity nor is it listed in the table of provisions in s.20-30.

3. It will not be subject to CGT event D1 because the event relates to borrowing money, s.104-35(5).

If something is not ordinary income and not statutory income then it is not assessable income, s.6-15(1).

 

Xsi - what is the $1300 fee you mention? Is it partially a break fee on a fixed loan?

 

Far more detailed. Agree on the issues re not being a reimbursement. Could this be classified as an incentive payment ? Such (cash) incentives are assessable to a business (Nexus to income ?)

 

Thanks all for the responses.

Terry- $1300 was just an example and not true refinance costs. My point was to work out how I classify the surplus be it $200 or $700.

 

Yes ... for a business:

Recoupments in the ordinary course of a business, Warner Music Australia Pty Ltd.

Incentives in the course of a business, FC of T v Cooling.

Bounties & subsidies in carrying on a business, s.15-10.

Also, where services are rendered, s.15-2.

Not much in relation to passive investment income though.