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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 BulletinVol 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.
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.
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