Using credit card solely to pay IP-related cost, annual fee deductibility

From my very primitive understanding, if the sole purpose of the CC/charge card is to pay for IP-related cost, i.e. council rates, water rates, then the annual fee is fully deductible. Is this correct?

On top of this, if I apply for an Amex Platinum charge card ($1,200 annual fee)for IP-related cost payment, and put the associated benefits by the card to personal use, i.e. $300 travel credit, Priority Pass and sign-on bonus points,would the annual fee still 100% deductible? .

Theoretically the card will still be 100% used for IP-related cost.

Many thanks.

 

Great question.

Interested also to hear about the perks of cards and memberships, and whether they are free to use on anything, or limited because they are gained from investment purposes.

 

You've point this out
And ask yourself how can you justify to the ATO that you have to spend $1200 annual fee for a credit card, when a nil annual fee credit card can do exactly the same job - paying bills

 

At least you can pay your tax online via credit card - the merchant fee they add is deductible
How to pay

 

What sort of benefits?

Sounds to me like it wouldn't be deductible in full

 

Thanks for this. If I need to justify this to ato, does that mean I almost certainly need to get a fee free cc for IP payment? What about a typical 200 fee card with reward points accumulated for cash back? Would ato argue about that?

At the end of the day there are free products to serve a purpose, would this mean that any cost on getting a more premium product wouldn't be deductible?

Similar questions would be on:

If I purchase a air ticket to repair my IP, do I have to always take virgin or tiger and forget about Qantas?

If I applied an ip loan to Bank A with a higher rate than Bank B, but bank A offers a 1500 cash back. Do I need to justify why I chose bank A?

If there is a rule from ato on this, I.e. you have to always get the cheapest service in relation to IP, or you cannot deduct the cost?

Many thanks.

 

Any deductions have to be 100% for income producing purpose, otherwise reasonable proportions?!

Cash back have to go back for paying your IP expenses & not for personal use I would say

I guess as long as you can show the product you getting are solely for your IP / investment use

Don't think investors can claim travel expenses anymore from 1 July

No but again the 1500 have to go back to your investment

That's not the point, the point is your personal use

 

There is no law that says you have to minimise expenses - business class airfares are a common deduction (not for property investors though) when the taxpayer could easily have flown economy.

 

Probably wouldn't be deductible if you got audited. Most expenses come under the standard s8-1 deduction ie being incurred in gaining or producing assessable income.

Your credit card expenses is incurred in paying for expenses, the credit card fee is not assisting or required for you to earn rental income.

I had a client have their Diners Card fee deduction disallowed in an audit, despite the client asserting that it was part of their record keeping as all their work related deductions were paid for on it. Same issue really.

 

Thanks very much @purplecat for your kind reply. Are there any specific rules/private ruling on the case that I have to use cashback awarded from an IP loan on IP-related expenses? Guess your answer has broadened the scope of my original concern. I am sure someone would have used the reward points accumulated on their IP-related CC (although actual purchases on the card are 100% IP related) to get gift cards and spent those on groceries...

 

Thanks @BennEznElle . Why is it that the annual fee of a CC is not assisting producing income if it is solely for paying IP-related cost? What if an investor does have a CF issue and he does needs to use a CC/Charge card to assist with his CF? Not arguing but just want to know more on this. Many thanks.

 

Yes there are.

 

Not necessarily. If the payment is for capital expenditure the portion of the annual card fee and the merchant fee will also be capital expenditure. And when its a blended loan the ATO would probably just argue its too hard to apportion and deny it if it looks sus

Remember that a property produces passive investment income and its not a business. The nexus between such costs to producing income may not be established. The nexus may be to deriving non-assessable non-exempt benefits from the card too ie Amex black etc. If you pay using a card then recycle debt etc it could even be a scheme.

Personal advice for each taxpayer would be prudent

 

The benefits received may be assessable income. The FBT exempt benefit rules dont apply here. Its complex and depends on many aspects. If the card is solely used for IP costs you may have a issue

 

Thanks @Paul@PFI So the result of the discussion would be more like "All benefits (including cc sign-up bonus points, travel credit, lounge membership, hotel status, cashback) received from a CC ,which is used solely for IP-related cost, would still need to be used towards IP-related income producing activities in order to make sure the card annual fee is 100% deductible"?

 

So you maintain a debt on the card or you use other borrowed $$ to pay the card ?..Hmmm. I suspect its a issue. What is the predominant purpose - Using the card to get access to borrowed funds ? To capitalise ? Part IVA could see this as a scheme. Maybe.

The benefits received are a separate issue. As they dont related to a exempt fringe benefit but relate to use in your investment income it could be assessable. The Tax Ruling on rewards TR 1999/6 doesnt apply to a property investor. PSLA 2004/4 suggests a taxpayer can conduct a business activity of earning flight rewards freom use of a card...A bit uncertain as all rulings address fringe benefits not investment income which in itself inst ordinary income.

Hotel benefits, travel points - Hard to see use of them for an IP now they are non-deductible. Private use. Ditto lounge....

 

PS LA 2004/4 (GA) - Taxing consumer loyalty program rewards (As at 9 July 2015)

 

I've also found this:

On the other hand, if the account is simply a way for you to pay your bills and other expenses and it doesn't earn interest, the fees can't be claimed. Similarly, if you pay a single annual fee for a banking package (home loan, credit card, transaction account, etc.) it's unlikely that fee is deductible.

Tax tips to save you money - financial planning and retirement

 

Hi Paul, my question does not relate to debt on the card. Hypothetically the card is only used to pay IP-related cost and the balance is always paid off by the end of interest-free period.

My question is just about the annual fee for the card. I suppose if I pay an annual fee, say $200 for a credit card which doesn't have any capability in providing rewards back, the problem would be simpler: As the card is setup for income producing purpose, it's fee would be deductible?

Now say the card does have some benefits, a free airport lounge access per year. Can I use the lounge access personally, while still declare $200 annual fee fully deductible? If not, say the lounge access worths $50, am I only able to declare 200-50 - $150 for the annual fee?

Or as per @purplecat , annual fee for credit card are non-deductible at all, " if the account is simply a way for you to pay your bills and other expenses and it doesn't earn interest, the fees can't be claimed"

Which one is correct?

 

Have you also had a look at PS LA 2004/4 (GA)?
And I guess you need to ask yourself whether you conducting a business?
From all I can see credit card annual fees are deductible when it is a business expenses.

Edit: I also need to add, I didn't said the above, just merely quote it on the website & have quoted the source