(1) Work out the total amount incurred by the borrower under or in respect of the capital protected borrowing for the income year, ignoring amounts that are not in substance for capital protection or interest.
Example: Amounts that would be ignored under subsection (1) include amounts that are in substance the repayment of a loan or credit, the payment of an application fee or brokerage commission and the payment of stamp duty or other tax.
(2) Work out the amount that would have been incurred by applying the relevant indicator rate to a borrowing or provision of credit of the same amount for the income year.
(3) If the subsection (1) amount exceeds the subsection (2) amount, the excess is reasonably attributable to the capital protection for the income year.
(4) The relevant indicator rate is:
(a) for a capital protected borrowing based on a variable interest rate, the Reserve Bank of Australia's Indicator Rate for Personal Unsecured Loans--Variable Rate at the time the first payment for the income year was incurred; and
(b) for another capital protected borrowing, the Reserve Bank of Australia's Indicator Rate for Personal Unsecured Loans--Fixed Rate at the time the borrowing was entered into.