Is stamp Duty on Credit Line Tax deductable?

[Roger]

Hi,

I am in the process of getting a new credit line to use for property investing. I may not use this account for a while, Will I be able to get tax deduction on the stamp duty paid for setting up the credit line?

Cheers,
Roger.

[landlubber]

Roger,
I think it would be (as a cost of obtaining loan funds) as long as the line of credit IS used for income producing investments (and not personal items.)

A good one for the accountants here who know more than me!! ( I'm in Victoria and I asked my Minister for Finance (wife) the question and she advises me we no longer have the dreaded stamp duty on loans.

I'll be watching to see what other replies you get.
:)
LL

[babushka]

We amortised the stamp duty on setting up the line of credit for IPs over a period of 5 years for tax purposes. Not sure if this answers your question.

[Roger]

Thank you for your replies. I will also check this out when I see my accountant next. I will let you know what he says.

Cheers,
Roger.

[Rolf Latham]

Hiya Roger

depreciable over 5 years or written off in one go when the loan is discharged, whichever is shorter.

ta

rolf

[Roger]

Hi Rolf,

Thank you for the reply.

This morning I talked to my accountant. After a long conversation, he tells me that the Stamp duty can only be depreciated from the time I start using the credit line. Also, say if the credit line is for $500,000 and I use $200,000 to buy a property, only the portion of the stamp duty which applies to the $200,000 can be depreciated.

Is this correct?

Cheers,
Roger.

[Rolf Latham]

Hiya

Interesting advice :)

You would have to follow that advice but id say once you use any amount of that LOC that it would be kosher.

ta

rolf

[dantheman]

Ahh you are talking about mortgage stamp duty, I haven't thought of that as I'm only just about to enter the NSW market (more happily with no land tax now :-)).

What about this - I have an existing credit line, but recently had to pay stamp duty on my next IP of $11000, not having that in "cash" I paid it from the credit line which is also used for personal reasons.

I intend to claim the charged interest rate on this $11k each year until development completes then roll it into the new property's loan when the OTP apartment is done.

I hope I can do this - even though the stamp duty is a purchase cost not an ongoing expense, the interest is an ongoing expense on that purchase cost?

I figure that as long as I don't pay off the last $11k of the loan, then we can continue assuming that last $11k is the investment portion.

[babushka]

This morning I talked to my accountant. After a long conversation, he tells me that the Stamp duty can only be depreciated from the time I start using the credit line. Also, say if the credit line is for $500,000 and I use $200,000 to buy a property, only the portion of the stamp duty which applies to the $200,000 can be depreciated - Well, life Rolf said, interesting advice. I would think that the stamp duty on the LoC is amortised over 5 years for tax purposes from the date the LoC is available for drawdown. And, Rolf correctly said, it can be written off sooner if you repay the LoC (which most people don't as it is a source of ready cash for other investments or contingencies etc). I have amortised the whole amount of stamp duty, not just the portion relating to the amount I've drawn down. This is because once the LoC is approved you can draw down the whole amount if you want to. It is going to be a nightmare approach suggested by your accountant because the amount(s) you've drawn down from the LoC will fluctuate over time depending on your cash requirements.

Hi Dantheman,
Regarding your question, the stamp duty on mortgage (loan or Loc) must be amortised for tax purposes. The stamp duty on the purchase price of a property cannot be claimed as a tax deduction. Instead it is included (or formed part of) in the base cost for CGT when you sell the property. So, it is a carrying cost until then. In terms of you using your LoC to fund the stamp duty on the purchase price of an IP - which is normal for a lot of people - I would think you should be able to claim the interest expense on the LoC each year. Having said this, I have to confess I do not know if this is true when your IP is still being constructed off the plan as there is no income (to match the expense) until it is completed. Maybe other forumites can comment further on this.

[dantheman]

thanks

I would have argued that it was deductible because it is for the purpose of producing an income (and I did wait until the latest date to pay - must pay earlier of 12 months from contract or completion date)

Ahh yes I guess you can't claim the actual duty though in NSW, although I remember in ACT the rules were different when I bought and I think it can all be claimed in the first year

[babushka]

Ahh yes I guess you can't claim the actual duty though in NSW, although I remember in ACT the rules were different when I bought and I think it can all be claimed in the first year - Hi, Dantheman: The reason why the stamp duty on the purchase price of an IP is fully deductible in ACT because there is no land tax there (like in NSW and other states). All the land in the ACT are leased to the Crown.

[Roger]

Thanks babushka for the reply.

I will let my aacountant know what you suggested and see what he says.

Cheers,
Roger.

[geoffw]

The reason why the stamp duty on the purchase price of an IP is fully deductible in ACT because there is no land tax there (like in NSW and other states). All the land in the ACT are leased to the Crown.[/i]There is a land tax on any property in the ACT which is rented out. But at least I can pay it quarterly, which helps the cash flow.

But yes, you are right of the lease- stamp duty is on a lease, not an outright purchase, so it is deductible in the year in which it is incurred.

[babushka]

Thanks, Geoff, for that correction about the land tax!

[Jamie]

There is a land tax on any property in the ACT which is rented out. But at least I can pay it quarterly, which helps the cash flow.

Hi Geoff,

So in the A.C.T. you never own the land but you pay land tax?

Jamie.

[geoffw]

So in the A.C.T. you never own the land but you pay land tax?Yep.

And I pay GST on a commercial lease, even though I never own the shop.

I even had to pay $13.5K stamp duty for signing a franchise agreement.

There's lots of things I don't own but pay tax on.

[dantheman]

I've never fully understood the "99 year lease" concept. What happens at the end of the least?
I've always thought that you would be able to renew for $1 or something simple otherwise there would be no confidence in land purchases/leases.

And what if the ACT Gov wanted to put a road through when your lease runs out, do they have to pay you compensation of the land value? or just boot you off the lease which they wouldn't do if they wanted re-election of course...

[Aceyducey]

Dan,

If they don't roll over the leases there'd be panic in the ACT. I expect them to roll them all over at a nominal cost.

And who wants to OWN the land anyway. The important thing is to control it!

How many properties do people actually own outright, versus their banks?

Cheers,

Aceyducey

[babushka]

The "99 year" lease in the ACT will be very interesting in the next 15 to 20 years. Canberra was established in 1912 and the 99 year lease started around 1920s, so the 99 year lease would expire in the next 15 to 20 years time. It will be interesting to see what happens then.

[Aceyducey]

Babushka,

I'm sorry to tell you that it's likely to be extremely boring & not interesting at all.

No government in their right mind would make such a thing 'interesting'.

Cheers,

Aceyducey

[dantheman]

What would be interesting is buying one of the cheap fiji properties advertised next to the "coup trial" notice in their newspapers.
Or a house in Iran or North Korea.
Even then if there were more changes of government, ownership rights should generally still be maintained - otherwise where is the support of the people, without that the government is no longer in charge are they.

[geoffw]

The lease system explained (http://www.actpla.act.gov.au/plandev/land_leasing/info/)Leasehold tenure was adopted so that speculation in undeveloped land could be avoided, and future increases in the value of land remained in the public purse.

[dantheman]

You can get a new lease at the end of the 99 years but if they REALLY have to have your land they can:
"Provided that the land is not required by either the Territory or Commonwealth for public purposes"

My property is only 20 years old so I'm hoping I have a long lease, the totterdell st development in Belconnen came after the rest of Belconnen.

Even so I agree with Acey, the NSW government will be voted out just for an annoying tax but if people in the ACT lose their homes with no compensation....