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Interest deduction before property is rented...where in ITR

Discussion in 'Accounting & Tax' started by letiha, 6th Jul, 2015.

  1. letiha

    letiha New Member

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    Hi

    Its been a few years since I've done this so a quick question.

    We are currently building 2 properties that will be rented out, I know that I can claim the deduction prior to their completion and being rented out, my question is where do I place the interest and rates etc in my tax return.

    Do I do it under the rental property party, and if so what do I put for how many weeks of the year was it available to be rented obviously nil.

    Or would I put it under deductions under a separate section, clearly next year will be easier give I will have rental income.

    Ta
     
  2. Travelbug

    Travelbug Well-Known Member

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    you can only claim a tax deduction on an income producing asset. if it is not available for rent i am of the understanding that you cannot claim.

    you say you know you can claim. id be interested to hear why that is.
     
  3. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Probably because that is the law. If there is a committment and continuing efforts to make income producing property then the interest and other costs would generally be deductible.

    See
    Steele v. Deputy Commissioner of Taxation (1999) 197 CLR 459; 99 ATC 4242 (almost no income for 9 years)
    Ormiston and Commissioner of Taxation [2005] AATA 978 (vacant almost 5 years)

    see also
    Taxation Ruling TR 2000/17

    But also see Temelli v. FC of T 97 ATC 4716; (1997) 36 ATR 417
    where the interest was not deductible as there was not enough committment demonstrated to producing income.
     
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  4. Travelbug

    Travelbug Well-Known Member

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    OK thats why I asked. Always willing to learn.
    Your answer (without the first sentence)would have been information gratefully received. You seem to sound so condescending. is that deliberate or just a lawyer thing?
     
  5. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    sorry, didn't mean it that way.
     
  6. Charles Sondergaard

    Charles Sondergaard New Member

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    Hi Guys
    Interest and other running costs eg rates and taxes - deductible as and when incurred. Income is taxed when received. 2 different sections of the tax act. Depreciation and Building Allowance can only be claimed only once ready to produce income - specific sections of the act relating to asset write-offs
     
  7. Greyghost

    Greyghost Well-Known Member

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    Dude this doesn't address the OP question. Terry W is correct.
     
  8. mcarthur

    mcarthur Well-Known Member

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    I'll back Terry - he's helped me on numerous occasions with extremely knowledgable information and he answered you both civilly and usefully.
    On the other hand, you @Travelbug wrote something as though you had facts - "you can only claim a tax deduction on an income producing asset". If instead you had opined, rather than stated, "I think you can only claim a tax deduction on an income producing asset" then probably everyone would have understood.
    From what I've experienced here and Somersoft, if you want to play at expert by making factual statements then be ready to back your words with facts! On the other hand, the forums are amazing if you have some humility, ask when you don't actually know, and respect those who do truly know.
     
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  9. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    There are many areas where a novice may make mistakes and incorrectly over or under claim deductions. Tax practitioners take years to get qualified and then experience takes even longer to build.

    Just as I wouldn't attempt to do my own dental work I would try to draft your tax issues as best you can and consider then getting personal tax advice to avoid errors. Tax returns are a self assessment system so mistakes aren't forgiven or not detected when they pay a refund. The ATO have 2-4 years to come back and ask questions.

    I would be seeking advice on whether a deduction can be claimed and then it is important where it is claimed in the return. There are two possible locations depending on facts.

    In the OP situation is seems highly likely that a deduction for interest (only) can be claimed using the principles in Steele's case. The cost should NOT be claimed in a rental schedule.
     
  10. letiha

    letiha New Member

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    Ok. so does any one have the specific item number on my tax return that I lodge this under. I'm currently considering D7...or D15.

    I am certain that I can claim this amount I just need the section to put in my return from a practical point. I'm leaning more towards D15.
     
  11. Magnus

    Magnus Member

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    It doesn't relate to any of the D1-15 items. I'd say the Rental Income schedule (21 I believe) will be the best place to put it, with 0 weeks available for rent. Hope that helps.


    For others, confirmation that you can claim these expenses on land you intend to build a rental property on:

    https://www.ato.gov.au/individuals/...ublications/rental-properties-2014-15/?page=7
     
    Last edited: 8th Jul, 2015
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  12. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    I recall one legal case where the person purchased an off the plan property intending to rent it out and claimed costs on interest etc. Then suddenly at completion they decided to live in it. Their deductions were upheld.
    Don't try this at home though.
     
  13. Magnus

    Magnus Member

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    Well, I guess if your intention just happens to change at the last moment (and you can prove it) you're still technically within the rules!

    But it's certainly a brave person who tries that on; not something I'd be willing to try.
     
  14. Travelbug

    Travelbug Well-Known Member

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    I'm glad you back Terry but I didn't know it was a competition. I know Terry and have had dealings with him. He is very knowledgeable and provides invaluable insight here. I was not questioning his knowledge.
    I did not write "I think" as in my experience based on my experience buying established properties this is the case. I misread the fact that it was a new property. It happens.
    That is just the nature of forums. No one is trying to play expert (well maybe a few are). Everyone is just answering based on their knowledge. I find it is always better to get clarification of a persons answer instead of criticising.
    Remember- You don't know what you don't know.
     
  15. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    I know that I don't know how to knit.
     
  16. Travelbug

    Travelbug Well-Known Member

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    Haha! Join the club.
     
  17. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    D15 is correct if you are certain Steele's applies to your circumstance. (also use the code for a rental cost) You cannot use the rental schedules until its available for rent. There is a data check on each rental schedule that requires income. No income and an error occurs. The ATO software doesnt have that check - agents do. The ATO just rejects it when its lodged. It gets the full manual review. Takes 5-6 weeks. And specific ATO attention is then focussed on your claim.

    If you follow Magnus you would have a query for sure. 0 weeks available for rent and a loss with no income is a certain audit enquiry. And a delayed refund ?

    That said a large D15 claim can also get the ATO on the phone.
     
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