Borrowing Costs – What are they and how to claim these?

These are tax deductible for investors who have used borrowings to purchase an income producing asset.

Borrowing costs defined for income tax purposes are the costs incurred to get the loan for the asset purchase and are usually charged when the loan is available for draw down, ie on settlement or at the time of refinancing the loan.

They are usually listed on the first page of the loan bank statements at or soon after the loan is drawn down.

These can include:

• Stamp Duty on the Loan

• Bank Valuation Fee

• Bank Legal Fees

• Loan Settlement Fees

• Establishment Fees

• Title Searches by the Bank

• Mortgage Broker Fees if any

• Lenders Mortgage Insurance passed onto the Borrower

These are claimable in full if the total amounts to $100 or less. For amounts over $100, they are claimable over the lesser of the term of the loan or 5 years on a pro-rata basis.

As the reality is usually borrowing costs are well over a thousand dollars+ and more if lenders mortgage insurance is included, it makes sense to ensure you claim these to maximise your tax deductions and reduce the tax you have to pay.