Can Credit Card / Line of Credit Fees Be Tax Deductible?

tio on 12/11/2014 - 00:18

Hi,

It's going to sound a bit long winded, but just hear me out. I was going through some of my financing today and something got me thinking. Basically, I signed up for the Citibank %2.9pa for 2yr line of credit that was posted sometime back (and it looks like the offer still available now, even though the website says it ended August 31)

https://www.ozbargain.com.au/node/151314

So I put the money into my ING account to get that 1%pa difference profit. However, that 1% profit will then be taxed against my marginal tax rate at the end of the financial year. Which makes me wondering if that would make the $129 set up fee a tax deductible expense since it's contributing towards me making that extra 1% profit - a disposable income?

In the same token, would that that mean any personal credit card fee that comes with a interest free period is tax deductible if you can show that you earn some interest from a saving account on the amount of money you can keep during the interest free period before paying off that credit card balance?

I know that this question is more appropriate to ask a tax professional. But I'm just curious if anyone has successfully done it?

Financial

Comments

  • retiredfeline on 12/11/2014 - 00:34

    Great idea. I think I'll get my brother-in-law to lend me money to put into savings and claim his interest as a deduction. Win-win.

  • chill on 12/11/2014 - 00:50

    No you cannot negative gear a credit card/loan annual fee.

    The government only wants house prices to go up forever.

    They need to collect all your interest tax to feed the negative gearing bill and keep property going up forever…

  • Kevan2 on 12/11/2014 - 01:02

    It is simple - Any expense [that is not excluded by the taxation rules] that is used to create income can be a tax deduction.

    "I know that this question is more appropriate to ask a tax professional" is true and note………………..>

    Any tax deduction claimed is only as good as -

    1. the taX return

    2. The tax assesment

    3. the court case

    4. the high court appeal.

      You loose, You win. Who pays the piper ??????

  • mustkill on 12/11/2014 - 08:05

    Interest should be deductible for funds that are put towards earning you assessable income as long as you can show sufficient connection between the interest incurred and income earning intention.

    s8-1 ITAA97

  • Geewhizz on 12/11/2014 - 08:18

    I'm glad you posted this. In a similar vein, I've been wondering - given that you can claim the fees for the account into which your wage/ salary/ whatever is paid, could you in fact have it paid into, say a cc account that has a yearly fee, and claim back that fee?

  • Smulder on 12/11/2014 - 08:49

    The ATO considers a personal credit card to be personal debt, regardless of what you use the money for. The money you withdraw from the credit card goes into your general pool of funds, and so loses all connection to what you end up using it for, even if that is for an investment.

    If you can get the credit card company to sign something stating that they lent you the money on the credit card specifically for investment purposes, then you may be able to argue a case. Of course, no credit card company would ever do that.

    • Chardon on 12/11/2014 - 10:27

      As long as there is a direct connection between the borrowed funds and the use of the funds, then the interest expense and associated costs of the line of credit or credit card would be tax deductible. You would just have to ensure that you could show that the money withdrawn from the line of credit went direct in to the ING account.

      In relation to the OP's second question regarding claiming costs of interest free credit card against money left in a bank account - can't do this. There is no direct connection between the money borrowed on the interest free card and the money earned.

    • tio on 12/11/2014 - 22:44

      actually, from my point of view, any funds depositing into any type of account is an investment in itself. There's always a level of risk, however minuscule, that your banking institution can go belly up the next morning. Depends on who you bank with, you may get government guarantee of up to $250,000 for your money. For funds beyond $250,000 and other non deposit-taking institutions, there's no guarantee.

  • tio on 12/11/2014 - 22:22
    -1

    Thanks for the input everyone. Just got an answer from an accountant friend of mine, apparently, he has never seen a claim involved personal credit card fee. But if it was a card registered for a business, then it is tax deductible. What gives.

    The idea's still bugging me though. Probably I'll give the ATO a call when I manage to get some free time and see if they can provide some information regarding this one. Because I don't think it's that hard to prove the connection between the interest you can earn and the interest free period. Say in a financial year, my average credit card monthly balance is $A. The interest free period is B days. The saving account interest is C%pa. Then on average, you will make $(AxBxC/365) from the saving account in that year, which is not much I admit, works out to be around $12pa for a $2000 mthly balance, 55 days interest free and 4% saving account.

    But being a self proclaimed protector of principles, and a self recognised tightarse, I say something is better than nothing.

    • donbot on 13/11/2014 - 10:31
      +1

      Rather than trying to force a card fee to be deductible, why not get a fee free card? Paying nothing is better than getting a deduction.

      Also - I think you'll be hard pressed to claim it in that sense as there is no sufficient connection between the funds earning interest and the expenditure put on your credit card - the cost of the credit card was not incurred in gaining or producing your assessable income, but rather it was incurred to allow you to buy things and give you an interest free period. It is totally disconnected from the funds generating your interest income which came from salary/wages/other avenues.

      Whereas, a business credit card used for business purposes has expenditure on it that is necessarily incurred in carrying on a business for the purpose of deriving income.

      s8-1) You can deduct from your assessable income any loss or outgoing to the extent that:

      (a) it is incurred in gaining or producing your assessable income; or
      (b) it is necessarily incurred in carrying on a * business for the purpose of gaining or producing your assessable income.

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