Investment Property Tax Claims

I've tried searching many places, but unable to work out this question - looking for advice before I see an accountant.

(Example dates used)

If I put a 10% deposit down on a OTP property in September 2016 which settles in September 2017, am I able to claim any expenses for the FY16/17, or am I not considered to have owned a property if it hasn't settled?

 

Since it didn't produce any income, you can't claim the interest and all buying expenses you need to carry forward as a Capital expense.

 

In Steele v. Federal Commissioner of Taxaxation (Steele's Case), the High Court considered the deductibility of interest expenses incurred on borrowings to purchase land intended to be developed for income production. It follows from Steele's Case that interest incurred in a period prior to the derivation of relevant assessable income will be incurred in gaining or producing the assessable income in the following circumstances:

• 
  • the interest is not incurred too soon, is not preliminary to the income earning activities and is not a prelude to those activities
  
  • the interest is not private or domestic
  
  • the period of interest outgoings prior to the derivation of relevant assessable income is not so long, taking into account the kind of income earning activities involved, that the necessary connection between outgoings and assessable income is lost
  
  • the interest is incurred with one end in view, the gaining or producing of assessable income, and
  
  • continuing efforts are undertaken in pursuit of that end.
  

While Steele's Case deals with the issue of interest, the principles can be applied to other types of expenditure including rates, land taxes and insurance expenses and borrowing costs.

You intend taking out an loan to purchase an investment property off the plan in one income year. The expected settlement date is in the following income year. provided the period of time between the purchase of the investment property and expected construction and settlement date of the property is not considered to be so long that the necessary connection between the interest outgoing and the derivation of income is lost.

As your property will become income producing soon after completion you are entitled to claim a deduction for interest expenses incurred on the loan to purchase the property. Similarly, the council rates and sewerage charges incurred in relation to land on which an income producing property is being built are also deductible under section 8-1 of the ITAA 1997.

 

Your intentions about this property need advice. Steeles decision is not absolute...you have not addressed your intent to keep or sell

 

If it was your intention to rent the property out from the beginning then the interest would be deductible. Seek specific advice.

 

Thank you all, this has given me a much clearer direction

 

I have been advised that only interest is deductible referencing Steele's/Ormiston Cases, but there seems to be a real possibility that other expenses may be claimed.

I have an investment property that will be developed into new investment properties. It has been vacant for over a year waiting for completion of DA/CC process and also because the significant damage from the last tenant was not repaired due to what was supposed to be the imminent demolition of the property.
The DA has dragged on longer than expected and another financial year may pass before construction begins.

So, my question, are my land tax, council rates and insurance expenses also deductible in this scenario or just the interest that I'm claiming?

Ormiston and Commissioner of Taxation [2005] AATA 978; (2005) 60 ATR 1277; 2005 ATC 2340 (5 October 2005)

 

They could be deductible depending on the circumstances.

 

Thanks Terry, something to investigate further.