Many property investors miss out on claiming borrowing expenses or claim them incorrectly. Borrowing expenses include the fees associated with obtaining a loan, such as bank fees, legal fees, title search fees, and Lenders Mortgage Insurance (LMI), which are incurred when borrowing funds to purchase a property. These expenses are tax-deductible; however, they cannot be claimed as a full deduction in the year they’re incurred. Instead, they must be spread out (or amortised) over five years or the term of the loan, whichever is shorter.
A frequent mistake among investors is to continue using the original borrowing expense schedule even after refinancing. However, if you refinance, you are not required to maintain the previous five-year amortisation schedule. Instead, you can claim the remaining balance of the borrowing expense immediately in the year you refinance. This can provide a helpful tax deduction boost, as it allows you to recoup the unclaimed portion of the original borrowing expenses in a single tax year following the refinance.
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