Accounting question re deductibility of future dev site

Hi guys, I've spoken to my accountant about this and trawled the forums but can't seem to find a concrete answer to my question. Here's my scenario:

Derelict property (not rentable) bought July 2017 as a subdivision site. Demolition and building will commence Jan 2018 with an aim to be completed and have tenants in in Sept 2018.

Is the interest incurred on my mortgage in the holding phase of the process deductible? I have heard mixed things - accountant says unless the property is generating an income it isn't, whereas a developer has told me differently. Can anyone point me to where I can find the answers? Let me know if further clarification is needed. Thanks all

 

This is a Tax question.

It depends. If on capital account it could be deductible. If an isolated transaction on revenue account it might only be deductible at end.

 

See Steele's case

 

If you ultimately aim to have the property built and rented the current interest cost may well be connected to the rental income.

Their should be a strong argument that the interest is deductible. This will need to be fleshed out and worked through to get that result as the facts may veer you another way.

The way you prepare your financial reports will be one indication of your intention and your intention will affect the tax outcome.

Think about your long term game plan if you are hanging onto the subdivided site. Consider GST, land tax, statutory compliance costs and estate planning.

 

Yes - I'm now dealing with a tax problem when someone bought a site to develop and keep the new builds to rent. Claimed interest. Now they want to sell. We are looking now to amend this changed intention.