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Is a deduction allowable under section 25-30 of the Income Tax Assessment Act 1997 (ITAA 1997) for expenditure incurred by the taxpayer in discharging a mortgage which was used as security for money borrowed to purchase an income producing property?

Yes. A deduction is allowable under section 25-30 of the ITAA 1997 for expenditure incurred by the taxpayer in discharging a mortgage which was used as security for money borrowed to purchase an income producing property.

The taxpayer purchased a rental property.

A loan was taken out to purchase the property.

The borrowed money was used solely to fund the purchase of the property.

A mortgage was given by the taxpayer as security for this loan.

The taxpayer discharged the mortgage and paid a fee for the discharge.

Section 8-5 of the ITAA 1997 allows a taxpayer to deduct from their assessable income amounts that another provision of the Act allows them to deduct, that is specific deductions.

Section 12-5 of the ITAA 1997 lists those provisions which allow specific deductions. Included in this list is section 25-30 of the ITAA 1997 which deals with expenses of discharging a mortgage.

Section 25-30 of the ITAA 1997 allows a deduction for expenditure incurred to discharge a mortgage in the following circumstances: • where the mortgage is given by the taxpayer as security for the repayment of money borrowed by the taxpayer and used by the taxpayer for the purpose of producing assessable income; • where the mortgage is given by the taxpayer as security for the payment of the whole or part of the purchase price of property bought by the taxpayer and used by the taxpayer for the purpose of producing assessable income.

If the borrowed money or purchased property is used by the taxpayer solely for the purpose of producing assessable income, all expenditure incurred in discharging the mortgage is deductible. However, if the borrowed money or purchased property is used by the taxpayer only partly for the purpose of producing assessable income, the expenditure incurred in discharging the mortgage is only deductible to the extent the money or property is used for that purpose, that is only a proportion of the expenditure is deductible (subsection 25-30(3) of the ITAA 1997).

The taxpayer borrowed money solely to fund the acquisition of the rental property which was used for the purpose of producing assessable income. As such, the expenditure incurred in discharging the mortgage with regard to that loan is fully deductible under section 25-30 of the ITAA 1997.