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ATO Interpretative Decision

ATO ID 2002/589 (Withdrawn)

Income Tax
Borrowing expenses - costs of maintaining non-income producing property used as collateral for a loan

Attention This ATO ID is withdrawn. Guidance relating to the issue addressed in this ATO ID can be found in the Rental Property Guide (NAT 1729) published to ato.gov.au (QC 23626).
Attention This document has changed over time. View its history.
FOI status: may be released
Status of this decision: Decision withdrawn 24 March 2017.

CautionCAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.


Is the taxpayer entitled to a deduction for borrowing expenses under section 25-25 of the Income Tax Assessment Act 1997 (ITAA 1997) for the costs of maintaining a non-income producing property used as collateral for a loan?


No. The taxpayer is not entitled to a deduction for borrowing expenses under section 25-25 of the ITAA 1997 for the costs of maintaining a non-income producing property used a collateral for a loan as they are not borrowing costs.


The taxpayer purchased a vacant block of land. This vacant block of land was not used for income producing purposes.

The taxpayer subsequently purchased an income producing asset. The vacant block of land was used as collateral to finance the purchase of the income producing asset.

The taxpayer incurred maintenance costs in respect of the vacant land.

Reasons for Decision

Section 25-25 of the ITAA 1997 allows a deduction for expenditure incurred for borrowing money to the extent that the money is used for the purpose of producing assessable income.

'Borrowing' is defined in section 995-1 of the ITAA 1997 as meaning any form of borrowing, whether secured or unsecured, and includes the raising of funds by the issue of a bond, debenture, discounted security or other document evidencing indebtedness.

Borrowing expenses are those which relate to the actual borrowing of monies, eg the costs incurred in taking out a loan for the purchase of a rental property. Typically these would include costs such as application and other fees charged by the lender (e.g., valuation fees, procuration fees, legal expenses, stamp duty and survey fees).

The costs of maintaining a property that is used as collateral for a loan are not expenses relating to the actual borrowing of monies. These costs are too remote and are not part of the cost of borrowing.

The expenses incurred by the taxpayer relate solely to the vacant land and not to the income producing asset. Even though the vacant land is used as collateral for the loan used by the taxpayer to purchase the income producing property, the character of the expense does not change. The costs of maintaining the vacant land are not borrowing costs and therefore are not deductible under section 25-25 of the ITAA 1997.

Date of decision: 3 April 2002

Year of income:Year ended 30 June 2001

Legislative references:
Income Tax Assessment Act 1997
   section 25-25
   section 995-1

Borrowings and loans
Expenses of borrowing
Deductions and expenses

Siebel/TDMS reference number: DW404552; 1-6ATCG4F; 1-AZZ4A1Y

Business line: Small Business/Individual Taxpayers

Date of publication: 31 May 2002
Date reviewed: 23 February 2015

ISSN: 1445-2782

ATOID 02/589W history   Top  
   Date   Version 
    3 April 2002   Original statement   
 You are here ®  24 March 2017   Withdrawn   


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