Announcements
Looking for answers? Search our popular topics or ask a new question.

ATO Community

Re: Is a fixed interest rate loan break cost tax deductable??

I'm new

Views 2865

Replies 6

Hello, i've currently got a fixed interest rate loan on a tenanted investment property and, would like to change it to get a lower variable rate but there is a break cost involved. eg to break the loan it will cost $1500. Can i claim this cost as an expense??

 

Thanks

1 ACCEPTED SOLUTION

Accepted Solutions

Most helpful response

ATO Certified Response

Taxicorn

Replies 5

@AshTaxCom 

 

Generally, mortgage discharge expenses (costs involved in discharging the mortgage) other than payments of principal and interest are deductible in the year they are incurred.

 

Solicitor's fees to prepare the discharge is considered a capital expense and is non-deductible. You can find information about legal expenses you can and can't claim and capital expenses on the website.

6 REPLIES 6

Most helpful response

ATO Certified Response

Taxicorn

Replies 5

@AshTaxCom 

 

Generally, mortgage discharge expenses (costs involved in discharging the mortgage) other than payments of principal and interest are deductible in the year they are incurred.

 

Solicitor's fees to prepare the discharge is considered a capital expense and is non-deductible. You can find information about legal expenses you can and can't claim and capital expenses on the website.

Newbie

Replies 4

So break fees paid to the bank for getting a better rate isnt deductible even as a borrowing expense? Please advise (1) if we change lender (2) When staying with same lender

Community Support

Replies 3

Hi @VivekP,

 

Thank you for your post. The response @macfanboy has provided is correct. 'Generally, mortgage discharge expenses (costs involved in discharging the mortgage) other than payments of principal and interest are deductible in the year they are incurred. You can check under borrowing expenses on our website.  

 

Solicitor's fees to prepare the discharge is considered a capital expense and is non-deductible. You can find information about legal expenses you can and can't claim and capital expenses on the website'.

 

Regards,

Jodie2.

Newbie

Replies 2

Thanks Jodie2

It seems per you break fees is a legal cost and not a financing cost even though no lawyer/ legal team is involved.

Fyi, break costs are economic costs charged by lenders when borrowers closes the facility or changes it before the fixed interest period expires.

Sometimes, quoting law doesn't explain things!!
Cheers

Initiate Registered Tax Practitioner

Replies 1

Hi VivekP

I 100% agree with you. There's no point in just quoting law, or ATO rulings when they don't make a definitive statement.  ESPECIALLY when the links that are posted are broken.


IMO the break fees aren't legal fees, they're just bank fees, unless the fees are incurred in order to have legal documents prepared.  So they are either:

1. More like "borrowing costs" and would be deductible over 5 years or the life of the (new) loan, whichever is less.

or

2. A fee for discharging the (old) mortgage and deductible in full in the year it is incurred.

 

If in doubt, get in writing from the bank exactly what the break fee represents.

Good luck!

 


@VivekP wrote:
Sometimes, quoting law doesn't explain things!!
Cheers

 

Community Support

Replies 0

Hi @mitchf2 and @VivekP,

 

Apologies, the links have been fixed from my earlier post. I also advised - Generally, mortgage discharge expenses (costs involved in discharging the mortgage) other than payments of principal and interest are deductible in the year they are incurred. Or they could also relate to borrowing costs as @mitchf2 advised.

 

The second paragraph mentioned, you cannot claim an immediate deduction for solicitors fees, in the event they prepared the discharge of the mortgage.

 

I hope this helps.