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Promotion/Refinance Allowance

Discussion in 'Accounting & Tax' started by Xsi, 26th Apr, 2016.

  1. Xsi

    Xsi Member

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    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.
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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

    Xsi Member

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    Thank for the quick response Terry.
     
  4. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    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
     
    Last edited: 26th Apr, 2016
  5. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    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.
     
  6. Rob G

    Rob G Well-Known Member

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    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).
     
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  7. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Xsi - what is the $1300 fee you mention? Is it partially a break fee on a fixed loan?
     
  8. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    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 ?)
     
  9. Xsi

    Xsi Member

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    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.
     
  10. Rob G

    Rob G Well-Known Member

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    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.