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Tax deductability for Personal Home insurance, with a difference?

Discussion in 'Accounting & Tax' started by Andrew H, 26th Jul, 2016.

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  1. Andrew H

    Andrew H Well-Known Member

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    So a friend of mine just brought this up with his accountant and raised my eyebrows a little in positivity.
    He has his PPOR fully paid off. He has since drawn down funds on his PPOR and used it for deposits/costs etc for his IP's. The lenders require his home to be insured for security. Does this make 100% of his home building insurance tax deductable?
    In North Qld this can be quite significant.
     
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  2. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    The security used for any loan is largely irrelevant to the deductibility. In this case the new loan used to pay IP costs would be deductible against his IP. The connection between insurance and it being a borrowing cost is just not correct. The basic fundamentals of our tax law look at the nexus between earning income and incurring a cost in producing that income. The insurance is too remote. The insurance is taken to replace the home from insured risks - Its nothing to do with earning rent.
     
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  3. Andrew H

    Andrew H Well-Known Member

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    I am not saying there is a connection to 'borrowing costs'. However lets say he doesn't want to insure his home. for various reasons. But has to insure it due to the fact the lenders require it to be insured as it is used for security? Thefore one could argue that it is a cost related to earning an income.....
     
  4. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    No. The insurance provides risk protection if the property is subject to loss. It is NOT a borrowing expense (yet you are arguing it is a cost incurred in borrowing from a bank) and is not related to the income production.

    Its kinda like arguing that your haircut is half deductible cause it grows at work.
     
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  5. Andrew H

    Andrew H Well-Known Member

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    So a loan establishment cost isn't claimable - its a cost incurred from borrowing from a bank?
    Yes insurance on the IP iteself provides risk protection if subject to loss. - Claimable. In that case it would be similar to the way a Loan establishment cost is treated, would it not? Insurance not on secured home - no loan - therefore it is required to establish the loan? but its an ongoing cost.....(?)

    If your hair doesn't grow you can still go to work, not a requirement for the job and not claimable....
     
  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Loan fees are borrowing costs and deductible if it relates to an investment loan.
    Insurance for a PPOR is a private expense and not deductible.
     
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