Tax deductibility of break costs

[goodali]

Hi all,

I've wandered around the site, but haven't seen anything conclusive on this. Looking for thoughts on tax deductibility of loan break costs on investment property loan.

In this case, break costs of approx $5k have been paid out of cash (i.e. not capitalised onto the existing loan). Should this be a tax deduction in the year paid (b/c incurred in the generation of the rental income), or included in the cost base for CGT purposes?

Anyone got some info around this from ATO/other source?

Cheers,
Ali

 

[PrimeCommercial]

Yes, you can claim it in the year it was incurred, the whole $5000k


2005 info sheet from ATO

Page 12
http://www.ato.gov.au/content/downloads/NAT1729-05.pdf


Mortgage discharge expenses

Mortgage discharge expenses are the costs involved in
discharging a mortgage other than payments of principal
and interest. These costs are deductible in the year they
are incurred to the extent that you took out the mortgage
as security for the repayment of money you borrowed to
use to produce assessable income.
For example, if you used a property to produce rental
income for half the time you held it and as a holiday
home for the other half of the time, 50% of the costs of
discharging the mortgage are deductible.
Mortgage discharge expenses may also include penalty
interest payments. Penalty interest payments are amounts
paid to a lender, such as a bank, to agree to accept early
repayment of a loan – including a loan on a rental property.
The amounts are commonly calculated by reference to the
number of months that interest payments would have been
made had the premature repayment not been made.
Penalty interest payments on a loan relating to a rental
property are deductible:
■ if the loan moneys borrowed are secured by a mortgage
over the property and the payment effects the discharge
of the mortgage, or
■ if payment is made in order to rid the taxpayer of a
recurring obligation to pay interest on the loan.

 

[Pushka]

Penalty interest payments on a loan relating to a rental property are deductible:
■ if the loan moneys borrowed are secured by a mortgage
over the property and the payment effects the discharge
of the mortgage, or
■ if payment is made in order to rid the taxpayer of a
recurring obligation to pay interest on the loan.

Does that also include the case of refinancing a mortgage for PPOR to replace an earlier mortgage that was taken out soley to purchase an IP?