On 1 December in the previous year a taxpayer borrows $350,000 to use in his business. He pays $2,000 in Stamp Duty and $500 in mortgage broker fees. The loan was to be repaid in 10 years. Interest in the current year was $10,000.
What is the remaining expenditure and the remaining loan period to calculate the claim for borrowing expense deduction under s25-25 in the current year?
To calculate the claim for borrowing expense deduction under s25-25 in the current year, we need to determine the remaining expenditure and the remaining loan period.
1. Remaining Expenditure:
Total Borrowing Expenses = Stamp Duty + Mortgage Broker Fees + Interest
Total Borrowing Expenses = $2,000 + $500 + $10,000
Total Borrowing Expenses = $12,500
The taxpayer can claim a deduction for borrowing expenses over the lesser of five years or the term of the loan. As the loan was to be repaid in 10 years, the taxpayer can still claim the remaining expenditure over the next 5 years.
Remaining Expenditure = Total Borrowing Expenses - Amount claimed in previous years
Remaining Expenditure = $12,500 - $2,500 (claimed in the previous year)
Remaining Expenditure = $10,000
2. Remaining Loan Period:
The loan was initially taken for 10 years, and it has been 1 year since the taxpayer borrowed the money. Therefore, the remaining loan period is 9 years.
Therefore, the taxpayer can claim $10,000 as a deduction for borrowing expenses under s25-25 in the current year, with a remaining loan period of 9 years.