What are borrowing expenses for rental properties?

Borrowing expenses are costs you pay when taking out a loan to purchase a rental property. They include loan-establishment fees, mortgage broker fees, title search fees charged by your lender, and stamp duty on the mortgage.

How do you claim borrowing expenses for a rental property in Australia?}

If your total borrowing expenses exceed $100, you spread the deduction over five income years or the loan term, whichever is shorter.

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Understanding Borrowing Expenses for Rental Properties I Trinity Accounting Practice

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Introduction

When purchasing a rental property, many investors incur borrowing expenses that can be claimed as tax deductions over time. Understanding which expenses are deductible and how they are claimed can help property investors legally reduce their taxable income while staying compliant with the Australian Taxation Office (ATO) regulations.

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What Are Borrowing Expenses?

Borrowing expenses are the costs directly related to taking out a loan for a rental property. These do not include the loan principal or interest payments but cover the additional costs of securing the loan.

Some common borrowing expenses include:

✔ Loan establishment fees✔ Title search fees charged by the lender✔ Mortgage broker fees✔ Stamp duty (on the mortgage, not the property)✔ Lender’s mortgage insurance (LMI)✔ Mortgage registration fees✔ Costs for preparing and filing loan documents

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How to Claim Borrowing Expenses

The ATO requires borrowing expenses to be deducted over a period of five years or the life of the loan (whichever is shorter) if the total cost exceeds $100. If the expenses are $100 or less, they can be deducted in full in the first year.

💡 Example:If you incur borrowing expenses of $2,000, you can claim $400 per year for five years.

If you repay the loan before five years, you can claim the remaining borrowing expenses in full in the final year.

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Non-Deductible Borrowing Expenses

🚫 The following expenses cannot be claimed as borrowing expenses:

Loan repayments (principal and interest)
Conveyancing fees
Stamp duty on property purchase (only mortgage-related stamp duty is deductible)
Loan redraw fees
Break fees for fixed loans

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Maximizing Tax Benefits for Borrowing Expenses

✅ Keep proper records of all borrowing costs to claim deductions accurately.✅ Work with a tax accountant to ensure compliance and maximize deductions.✅ Claim borrowing expenses over five years to spread tax benefits efficiently.

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Conclusion

Understanding borrowing expenses and how to claim them can significantly benefit property investors by reducing taxable income. Ensuring proper documentation and staying compliant with ATO guidelines will help maximize deductions.

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For expert tax advice and rental property accounting services, contact Trinity Accounting Practice today.

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👉 Trinity Accounting Practice
✅ Accounting Firm in Beverly Hills
☎️ 02 9543 6804
📍 159 Stoney Creek Road Beverly Hills NSW 2209
🌐 www.trinitygroup.com.au

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