25‑25 Borrowing expenses25‑25 Borrowing expenses

25‑25 Borrowing expenses

(1) You can deduct expenditure you incur for *borrowing money, to the extent that you use the money for the *purpose of producing assessable income. In most cases the deduction is spread over the *period of the loan.

For the cases where the deduction is not spread, see subsection (6).

Note: Your deductions under this section may be reduced if any of your commercial debts have been forgiven in the income year: see Subdivision 245‑E.

Income year when money used solely for the purpose of producing assessable income (2) You can deduct for an income year the maximum amount worked out under subsection (4) if you use the *borrowed money during that income year solely for the *purpose of producing assessable income.

Note: Example: In 1997‑98 you borrow $100,000 and incur expenditure of $1,500 for the borrowing. You use the money to buy a house. Throughout 1998‑99 you rent the house to a tenant. You can deduct for the expenditure for 1998‑99 the maximum amount worked out under subsection (4).

Income year when borrowed money used partly for that purpose (3) If you use the money only partly for that purpose during that income year, you can deduct the proportion of that maximum amount that is appropriate having regard to the extent that you used the *borrowed money for that purpose.

Note: You cannot deduct anything for that income year if you do not use the money for that purpose at all during that income year.

Maximum deduction for an income year (4) You work out as follows the maximum amount that you can deduct for the expenditure for an income year:

Method statement

Step 1. Work out the remaining expenditure as follows:

• For the income year in which the *period of the loan begins, it is the amount of the expenditure.

• For a later income year, it is the amount of the expenditure reduced by the maximum amount that you can deduct for the expenditure for each earlier income year.

Step 2. Work out the remaining loan period as follows:

• For the income year in which the *period of the loan begins, it is the period of the loan (as determined at the end of the income year).

• For a later income year, it is the period from the start of the income year until the end of the period of the loan (as determined at the end of the income year).

Step 3. Divide the remaining expenditure by the number of days in the remaining loan period.

Step 4. Multiply the result from Step 3 by the number of days in the remaining loan period that are in the income year.