Tax Tip 38: Interest on Construction of an investment property

Do you have any site saying this or when?

THanks

 

Interest on land and construction now generally no longer deductible because of s26-102 ITAA97 which was introduced in 2019
INCOME TAX ASSESSMENT ACT 1997 - SECT 26.102 Expenses associated with holding vacant land

Note that this section doesn't apply to companies holding land

 

All expenses not just interest

 

This thread was just about the deductibility of interest but you are correct

 

I only mention it as many misunderstand the new rule, as if it only impacts interest.

Misunderstanding #2 is that it applies to all investment properties. No. It only applies to vacant land or newly constructed property. Acquiring an existing investment rental dwelling is still elegible under the principles of Steele's decision.

Misunderstanding #3 : Steele's principles also apply to a new acqusition OTP provided the intention is to make it available for rent as soon as practicable following settlement.

In #2 & #3 interest on deposits etc may be deductible prior to settlement to take title.

 

Yes good point
The principles of Steele should still apply to situations where there is no income now because of tenant repayment holidays. Interest and other costs should still be deductible in these cases.

 

Having a pm listing would still be a key issue. The ATO doesn't require you to drop your pants though. The smart landlord must outstare the dunbf&$k5 ones who will drop their rent in a panic.

Find a tenant with a job

Spoke to two today
One has three IPs all working. Paying rent. Another had two with tenants in Logan on benefits. They have more money than a month ago. What recession

 

So a trust with a corporate trustee gets away with claiming interest on construction still? Even if the trust isn't running a business of property development?

I thought the ATO were trying to target mum and dad investors who built a rental prop either in their own names or through their family trust or SMSF.

 

No. The vacant land holding period rules must be considered in each case. Where a trustee (legal owner) owns trust property (beneficial rights) the vacant land holding period rules apply. If that is a disc trust it fails . If it is a unit trust the unit holders cant be a closely held trust or individuals.
Deductions for vacant land

Note a company trustee is NOT the same as a company as the legal and beneficial owner. Tax law considers the TRUST owns the property and conducts the activities.

Note Partnerships are not generally mentioned. This is because a Partnership itself cant own land. The partners do. Best example is tenant in common as a form of partnership

 

That was my assumption as well - a corp trustee is not the same as the company owning a property. I keep hearing the opposite.

Thanks a lot for your reply

 

no

 

You didnt read (or comprehend) my post. Its starts with NO.....

The vacant land holding period rules PREVENT a disc trust that constructs new property from claiming deductions until a point in time when its completed and available for rent.

 

Yep I understand that. Sorry if wasn't clear.