Yesterday I wrote on the basics of Deductions for LMI expenses: Tax Tip 33: Deductibility of LMI https://propertychat.com.au/community/threads/tax-tip-33-deductibility-of-lmi.3425/ Things are more complex with claiming LMI on loan increases. With cross collateralising securities in is pretty straight forward. Example Tom has a $500,000 property with a $400,000 loan = 80% LVR. He buys a $500,000 investment property and borrows $500,000 using both properties as security. 90% LVR overall but LMI will be charged on the new $500k loan so Tom should be able to claim this in full (over 5 years). PBR Authorisation Number: 1011759809034 says LMI is deductible (for the taxpayer who applied for the PBR), but the scenario of this PBR relates to a cross collateralised loan where the PPOR is used as security and one big loan is used to buy the investment property using both the PPOR and IP as security. https://www.ato.gov.au/rba/content/?ffi=/misc/rba/content/1011759809034.htm But avoiding crossing means complications. Example Say Jim had an investment loan of $400,000 on a $500,000 property. He wants to get at the equity to use as deposit for the next property so he borrows $50,000 by topping up his loan to $450,000 (90%). LMI is $10,000 and lets assume he pays this out of the loan so he ends up with $40k extra. Is the $10k LMI deductible? Yes on first glance you would think it would be a borrowing cost deductible against the income of the property it is borrowed for. But in Jim’s situation it is one big loan and the LMI is levied not on the $50k extra but on the whole loan of $450,000. So part of the LMI is associated with the existing loan and part with the new extra borrowings. The portion relating to the existing loan cannot be deductible because it doesn’t relate to the production of income. The new $50k increase relates to the production of income so the LMI associated with this loan increase should arguably be deductible. But 50/450 = 11% so perhaps the ATO may only allow 11% of the LMI to be claimed. However, Jim shouldn’t be increasing loans like this though as this will result in mixed purpose loans (see here why this is not good idea) so Jim would want a separate split. He would have 2 loans, $400,00 and $50,000 to clearly segregate the loans. If he can get the LMI charged to this $50,000 split he will have a stronger argument to the ATO that the LMI relates to this loan only and therefore all deductible. Where the $400,000 loan was associated with the main residence loan it is even more vital to split the loan and to get the LMI charged on the new split. Where there is one big loan it would be very likely only 11% of the LMI would be deductible. As far as I know there is no ATO guidance on this matter other than some private rulings which are not clear and can only be used as a guide: Authorisation Number: 1011715947648.In this matter the taxpayer incurred LMI on the main residence loan which was refinanced to get the investment loans. LMI was not deductible in this case. But it is unclear how the taxpayer had set himself up as this PBR offers little guidance. https://www.ato.gov.au/rba/content/?ffi=/misc/rba/content/1011715947648.htm If you are contemplating claiming LMI along these lines you may want to consider a private binding ruling. Tomorrow I will write another one on LMI as there are even more tricky matters to consider.