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  1. #1
    Join Date
    Mar 2010
    Location
    Christchurch
    Posts
    29

    Default Low equity premium tax deductible?

    Is the LEP / lenders mortgage insurance a tax deductible expense?

    Thanks
    Ben

  2. #2
    Join Date
    May 2004
    Location
    Bay Of Plenty, NZ
    Posts
    3,604

    Default

    Is LEP claimable?? IMHO, I would think so.

    Disclaimer - I'm not an accountant!! Pay some $'s and get some real advice.
    Patience is a virtue.

  3. #3
    Join Date
    Jun 2009
    Posts
    310

    Default

    Yes. This from CCH:

    10-182 Borrowing costs

    Last reviewed: 21 December 2009


    IT07 s DB 5


    A deduction is allowed for expenditure incurred in borrowing money used as capital in deriving assessable income. The deduction allowed overrides the capital limitation, although the other general limitations, such as the private limitation, still apply.

    The deduction allowed may be expected to encompass financier fees and legal costs incurred in the course of raising the finance. It may also extend to mortgage repayment insurance effected to support the borrowing. See Tax Information Bulletin Vol 6, No 9, February 1995 at p 19.
    edit: Just to clarify, this refers to insurance the bank has you pay that guarantees their loan is repayed. It is NOT deductible if the bank insists that you take out a life insurance policy.

    edit again: Here is the excerpt from the Tax Information Bulletin refered to above:

    Deductibility of mortgage repayment insurance taken out to obtain a business loan


    Section 136 - Expenditure incurred in borrowing money or obtaining lease: A business taxpayer had to take out a mortgage and mortgage repayment insurance, in order to borrow money which is to be used to produce assessable income. The taxpayer asked if the insurance premiums are deductible, and whether their deductibility hinges on the obligation to take out the insurance.

    Section 136 allows a deduction for expenses incurred in borrowing money to be used in the production of assessable income. This would include the cost of the mortgage repayment insurance. Examples of other expenses that may be claimed include: legal and registration fees, valuation fees, and solicitors' fees. The deduction is not contingent upon the insurance being a condition of the loan.

    Provided any payment received as a result of a claim against this policy is not of the nature of a "loss of profits", it would be considered to be a capital payment, and would not be liable to income tax.
    Last edited by ChrisD; 21-07-2010 at 02:07 PM.

  4. #4
    Join Date
    Sep 2004
    Location
    Hastings
    Posts
    14,876

    Default

    Quote Originally Posted by ChrisD View Post
    Examples of other expenses that may be claimed include: legal and registration fees, valuation fees, and solicitors' fees.
    This came up before, right? That legal
    costs are now deductible, whereas
    they have not been so, before.
    .
    Want a great looking concrete swimming pool in Hawke's Bay? Designer Pools will do the job for you!

  5. #5
    Join Date
    Jun 2009
    Posts
    310

    Default

    Quote Originally Posted by Perry View Post
    This came up before, right? That legal
    costs are now deductible, whereas
    they have not been so, before.
    .
    As long as the meet the general permission, all legal fees are deductible (overruling the capital limitation) if you're paying < $10,000 legal fees per year.

  6. #6

    Default Claiming Low Equity Fee

    Hi

    Before I ask my accountant I would like to ask can a low equity fee be claimed as an expense ?

    The bank charged me this for my latest mortgage and had tight lending rules six months ago.

    thanks NzDuder.

  7. #7

    Default

    Yes I believe you can.

    I also paid a low-equity fee when I bought my house last year, and i'm pretty sure I saw that my accountant had added it to my expenses.

  8. #8

    Default

    I have just had confirmation from the IRD that a Low Equity Premium is tax deductable. Confirmed by their legal team.

    Thanks NzDuder


 

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