Planning to break my fixed loan for IP. Can I claim it as a tax deduction?
Spoke with ATO and the staff had no clue.
Can You Claim Fixed Loan Breakfee on Tax?
Ash-Say on 14/07/2020 - 13:08
Last edited 14/07/2020 - 13:08
Last edited 14/07/2020 - 13:08
Comments
really?
OP has an investment property but I'm assuming is not using the services of a Tax Accountant - think of the potential deductions OP could be missing for a little fee compared to their investment.
In their defence a tax accountant would be more reliable than the Ozbargain forums.
These comments on the line of "have you asked XXX?" are obviously not helpful except for the commenter to maybe feel superior. They waste the time of the person who posts them while not actually helping anyone else.
In this case, I'm sure the OP could/should have asked their accountant but chose to ask OzB instead after s/he didn't get an answer from the ATO. If dasher86 can't help OP, better to keep quiet. I'm sure OP didn't come here to be schooled.
In my experience, there are a lot of grey areas and not all of what tax accountants tell you will be correct and compliant with the law. It's always good to know what others do/ have done.
@Amaris: Completely agree with you, what's the point in having a forum if you can't ask anything?
Any problem in the world could be solved by speaking to an expert, though often at a cost.
I would much rather get a real world answer from other people who have no motive other than to share their experience.
The line is tired and it's a shit response to a genuine question@giftcardinspector: Thank you. Although looking at the negs I’ve got, the general consensus on OzB seems that we should only ask questions here after we’ve failed to get an answer from a specialist!!!
I dont have an accountant. I always do tax return myself and don't think any thing I missed for IP.
This is new item and therefore asking about it. If anyone has experienced this, will be keen to keen to know whether they claimed it as borrowing or interest expense.
don't think any thing I missed for IP.
and you will never know…
I think it would be — check this tax ruling, specifically the first example. So long as it is for either the purposes of refinancing the property or for selling the property, it is OK to deduct.
https://www.ato.gov.au/law/view/document?LocID=%22TXR%2FTR20…
Sorry your URL is returning an error.
Sorry, this might work better? https://www.ato.gov.au/law/view/document?DocID=TXR/TR20192/N…
Edit: Tried opening it incognito, still nada. Search for TR 2019/2 on the ATO
It depends. Why are you breaking it?
If you paid $2k to break you fixed loan so you would pay $4k less interest and ask ATO for lower deduction then I would say yes. What people forget is how do you justify it?
If you went and paid $2k to break your fixed loan so you can refinance to buy a BMW then the ATO would ask… what is in it for me? Nothing? Polite no and go away
Yes breaking fee of $2.5k will save $3.5k
Is it on an investment loan?
Yes
HAve you considered that possibly the break fee will be the present value of $2500 and your $3500 saving will potentially be over a period of time…
Can You Claim Fixed Loan Breakfee on Tax?
Yes and No depending on the circumstances.
But will this payment be considered as mortgage discharge?
Also you can look up private rulings here
Put in the number 1012050844436 and you'll find your answer there too
Awesome thank you
@Ash-Say: Welcome. On a side note I’d also suggest still seeing an accountant. Just to find out if you’ve missed things
@bemybubble: I used to pride myself on how easy it was to do my own returns for many many years, but one year I won a complimentary tax return service and haven't looked back since. Well worth the extra few dollars, if not saving a lot of time it also tends to get you a lot more hidden deductions.
@Waltervp: Yep - agreed.
Don't get me wrong. I have no trouble advising clients that their work is easy for them to do it themselves if they wanted. But IMO if you've gone out and bought an investment property or something of substantial value, it just makes financial sense to see a professional. Not just for the transaction of the return itself, but for future guidance…
So the answer is yes its tax deductible if I understand correctly?
I thought it's not and will only be part of cost base which will be used to calculate capital gain if sold..
Unless it's both tax deductible and part of cost base..?
@OzFrugie: Because penalty interest is effectively based on a future interest saving by the customer it has the character of revenue rather than capital.
@OzFrugie: Should it stop becoming an income producing asset then this could change it's character back to capital.
If the fee forms part of the purchase or sale of an investment property then yes.
If you are just refinancing then probably not since its not a necessary part of buying or selling.
As others have suggested, use an accountant. Dont skimp on this.
the penalties are fairly hefty even for honest mistakes!
what did your tax accountant say?