Are Expenses During Settlement Period Deductible?

Hi All,

If I was to Exchange Contracts now for the purchase of a property that was going to Settle after the end of the current financial year, and I pre paid expenses for the next financial year (when I would own the property) during the current financial year prior to settlement, would those expenses be deductible as normal?

Obviously the issue here is that I would not technically be the owner of the property at the time the expenses were paid, but would be paying after I had committed to the purchase and for a period when I would be the owner.

Thanks,

MF35
 
I would think yes because a) the expenses are towards an investment and b) as an individual you would be accounting for revenue/expenses on a cash (as opposed to accruals) basis...

Disclaimer: I'm no accountant though...there are however some about...
*pokes accountants*
 
Hmmm ... I can see the ATO might use the following arguments:

1) To claim Div 40 depreciation you need to be the "holder" of the asset.

2) Your expenses are contingent on the contract being completed. No deductions for expenses that are merely threatened or impending ... Emu Bay Railway Co Ltd v FC of T.

Better discuss with your Accountant.

Cheers,

Rob
 
Re point 2 of Rob's comment...I for some reason thought the contract was unconditional...if not, yes you will run into said problem :)
 
Re point 2 of Rob's comment...I for some reason thought the contract was unconditional...if not, yes you will run into said problem :)

Often contracts have a condition subsequent such as "subject to finance" which might be regarded as defeasible by the ATO ??

If any uncertainty, it would pay to get an Accountant/Solicitor to quickly scan the contract and discuss details.

Cheers,

Rob
 
Thanks for the replies.

Contracts have not yet been exchanged. Waiting hopefully on a reply to our final offer. If we do agree on price and exchange contracts it will likely be on an "unconditional" basis.

I have indeed fired the question of to my Accountant. Waiting for a reply.

MF35
 
Thanks for the replies.

Contracts have not yet been exchanged. Waiting hopefully on a reply to our final offer. If we do agree on price and exchange contracts it will likely be on an "unconditional" basis.

I have indeed fired the question of to my Accountant. Waiting for a reply.

MF35

Let us know what the verdict is.
 
For peoples information my accountant advised that he believed the property would have to settle prior to the end of this financial year to claim any expenses incurred in this financial year.

Thanks, MF35
 
Hi,

You need to consider the general provisions of deductions, how is the deduction related to gaining or producing your assessable income? Since there is no income (rent) coming in before settlement, there is a timing issue as the property is not available for rent.

Hi All,

If I was to Exchange Contracts now for the purchase of a property that was going to Settle after the end of the current financial year, and I pre paid expenses for the next financial year (when I would own the property) during the current financial year prior to settlement, would those expenses be deductible as normal?

Obviously the issue here is that I would not technically be the owner of the property at the time the expenses were paid, but would be paying after I had committed to the purchase and for a period when I would be the owner.

Thanks,

MF35
 
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