Issue
Are the costs associated with the transfer of title on purchase of a rental property deductible as borrowing expenses under section 25-25 of the Income Tax Assessment Act 1997 (ITAA 1997).
Decision
No. The costs associated with the transfer of title on purchase of a rental property are not borrowing expenses for the purposes of section 25-25 of the ITAA 1997.
Facts
The taxpayer took out a loan to purchase a property that was to be used to derive rental income.
Included in the taxpayer's subsequent claim for a deduction of borrowing expenses, were the costs of transferring the title of the property, that is: • Stamp Duty on Transfer • Land Titles Office Fee • Registration of Title Fee
Reasons For Decision
Borrowing expenses are deductible in accordance with section 25-25 of the ITAA 1997. Borrowing is defined in section 995-1 of the ITAA 1997.
Borrowing expenses are expenses which relate to the actual borrowing of monies. Typically these would include costs such as application and other fees charged by the lender (e.g., valuation fees) and stamp duty on mortgage contract.
The costs of transferring the title from the vendor to the purchaser are not costs associated with the borrowing of funds. These are costs of acquisition and would be incurred regardless of whether or not money was borrowed to finance the purchase.
Whilst not deductible as borrowing expenses, these transfer costs may form part of the property's cost base for capital gains tax purposes: refer to section 110 -35 of the ITAA 1997.