Borrowing Expenses

Definition

Borrowing expenses are the costs incurred in taking out a loan to purchase a rental property. They include: loan establishment fees, mortgage broker fees, valuation fees, title search fees, lender's mortgage insurance (LMI), and mortgage registration fees. If total borrowing expenses exceed $100, they are deducted over 5 years or the loan term (whichever is shorter). If $100 or less, they are immediately deductible.

Many investors forget to claim borrowing expenses, or try to claim them all in year one. Spreading $15,000 in LMI + establishment fees over 5 years still yields $3,000/year in deductions. If you refinance or repay the loan early, you can claim the remaining unamortised balance in that year.

Loan establishment fee $600 + valuation $450 + LMI $8,500 + mortgage registration $200 = $9,750 total. Deduction: $1,950/year for 5 years. If you refinance after 3 years, you claim the remaining $3,900 in year 3.

ITAA 1997, Section 25-25

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