Building

[WebBoard]

From: Mike .


Build to Rent
From: Lee T
Date: 8/29/00
Time: 12:16:22 AM

Can anyone help?

I have purchased land and intend to build a house to rent. I cannot claim any interest or costs until construction commences (or can I?). Can I claim only for the house construction at this stage? When does the value of the land (and associated costs) become included?

Cheers Lee T

 

[WebBoard]

Ian (NSW)

Reply: 1
From: Mike .


Re: Build to Rent
From: Ian (NSW)
Date: 8/30/00
Time: 7:32:18 PM

Hello Lee

I have built to rent and approached my accountant twice with the same query. She was quite direct in saying that "only the interest on drawn-down funds can be claimed" ie partial payments to the builder. Simply holding the land is of no use to you taxation wise...start building ASAP!

Sorry can't be of more assistance. Regards Ian

 

[WebBoard]

Lee T

Reply: 1.1
From: Mike .


Re: Build to Rent
From: Lee T
Date: 8/31/00
Time: 1:23:26 AM

Thank you for your reply Ian.

I heed your advice and do plan to build this year. Though, I intend to owner/build. So far I have been informed that there is no problem renting out an owner/built house (immediately after completion). I hope my source was correct and no suprises await me. Have you heard of any problems associated with doing this?

I have previously owner/built and my seven years is up.

I think I will learn from this and purchase established houses from now on.

Thanks again Lee T

 

[WebBoard]

Des

Reply: 1.1.1
From: Mike .


Re: Build to Rent
From: Des
Date: 8/31/00
Time: 12:56:32 AM

Hi Lee and Ian

I think it's worth checking with your accountant on this in relation to the Steele decision by the High Court earlier this year. The Tax Dept's ruling in response to that is in their website (TR 2000/D3). While it's still only a draft ruling, it does indicate their line of thinking on this.

The ruling covers (in Steele's case) "… amongst other things, the deductibility of interest on money borrowed to purchase land intended to be developed." Paragraph 12 is, I think, the key.

"It follows from Steele that interest incurred in a period prior to the derivation of relevant assessable income will be 'incurred in the gaining or producing the assessable income' in the following circumstances:

• the interest is not incurred 'too soon' … to the income earning activities … (hmmm, how soon is 'too soon'?) ... yada yada yada yada

• the interest is incurred with one end in view, the gaining or producing of assessable income ... extra yada yada

So it's perhaps not quite as clear-cut as your accountant may have indicated. Obviously if you buy land to hold in the off chance that you may build at some time in the future, you would probably be hard pressed to convince the ATO that it was bought with the intention to gain assessable income.

Sorry if I've been too long-winded. Hope it helps tho. I think I spend too much time in the ATO's website (I have got to get myself a life!)

Regards Des

 

[WebBoard]

Ian (NSW)

Reply: 1.1.1.1
From: Mike .


Re: Build to Rent
From: Ian (NSW)
Date: 8/31/00
Time: 9:44:58 AM

Hello Des, Lee & All

Thanks Des on a well researched post.

Though not up with the legalities myself, I now wonder if the particular case mentioned will:

a) set a precedent for everyone who holds land for the building of rental properties.

b) allow for any retrospectivity as I have built to rent in '96 after holding land for four months....then building time of four months....almost a years interest.

c) cause an onslaught by other investors to hit the tax office with similar claims.

I haven't as yet read the ATO handbook on the website, but in speaking to my accountant she did point out that she uses a Tax office issued set of books which are essentially the bible for her....how the handbook stacks up against this, I don't know.

I too will forward her a copy of the particular case you mentioned even though it isn't cast in stone.

I still imagine this to be a significant, to say the least, turn up for the books for the Tax Office!

Thanks again Des, well done!

Cheers Ian

 

[WebBoard]

Lee T

Reply: 1.1.1.1.1
From: Mike .


Re: Build to Rent
From: Lee T
Date: 8/31/00
Time: 2:10:43 AM

Hi Des

I must say I'm glad you visit the ATO website.

I have printed the information you posted and intend to discuss this with my accountant.

I wonder if my bank could send the ATO a nice letter stating that our intentions were solely to build a rental property (purpose of the loan in the first instance) or if future investors could notify the ATO of their intentions before purchasing land.

If miracles occur I will keep you informed. But you will probably beat me to the information.

Thank you Cheers Lee T

 

[WebBoard]

Don Fraser

Reply: 1.1.1.1.1.1
From: Mike .


Re: Build to Rent
From: Don Fraser
Date: 8/31/00
Time: 7:50:28 PM

I hope I'm not too late on this one.

When you say is the interest claimable, do you mean it is apportioned as a purchase cost, such as mortgage insurance,over a five year period, or claimable in the year you build?

I have just finished having a house built for rental purposes, and I'd like to know if I can claim the interest on the builders drawdowns and the land price during the five or so months that the property doesn't earn income, in the year in which the house is built.

Hope you can help. Don

 

[WebBoard]

Des

Reply: 1.1.1.1.1.1.1
From: Mike .


Re: Build to Rent
From: Des
Date: 8/31/00
Time: 11:03:12 PM

Hi Don

The best advice I can give would be to speak to your accountant.

Our situation was that we built a house purely for rental purposes just over 12 months ago (well before GST). There was never any question about it being for private use (we live in a different state). We bought through the builder, so construction started soon after settlement on the land. The builder kept his end of the bargain and the house was completed 3 1/2 months later, and tenants moved in and started paying rent the following week.

We presented all these details to our accountant a couple of days ago when we went in to do our tax returns, and he said there was no question that we could claim the interest paid while the house was being built as a normal deduction (the interest was incurred for the sole purpose of producing assessable income). I'm far from being a tax whiz of any description, so unless he comes back with a completely different story over the next couple of days, we can only go by what he advised.

Your situation may or may not be the same as ours, so, ultimately, you need to speak to your accountant.

Hope this helps.

Regards, Des

 

[WebBoard]

Richard

Reply: 1.1.1.1.1.1.1.1
From: Mike .


INTEREST DEDUCTIBILITY DURING CONSTRUCTION
From: Richard
Date: 05 Sep 2000
Time: 20:52:00

The ATO Rental Property Handbook says:

To claim interest on a loan for an IP the "property must be rented, or available for rental, in the income year for which you claim a deduction"

My situation - land purchased January, construction commenced Feburary and completed (ie available for rental) August 2000.

My question - "what about the interest accrued Jan - 30Jun?" Can I claim this as a deduction in last FY, current FY or not at all?

I had previously thought interest accrued during construction would be regarded as a "capital" cost - but if there were some way I could deduct it against my income now I would be most pleased!!

Thanks, Richard

 

[WebBoard]

Lee T

Reply: 1.1.1.1.1.1.1.1.1
From: Mike .


Build To Rent Follow Up
From: Lee T
Date: 04 Oct 2000
Time: 23:52:00

Hi Ian, Des, Don and interested forum members,

Re: Purchasing land with the intent to build a rental and claiming the interest paid.

I have just visited my wonderful accountant (yes there are some) and he advised me that the ruling for the Steele case passed 12-18 mths ago.

Therefore, the interest paid on land with the sole intention of building a rental house is claimable.

From what he understood of the case, the land was vacant for a number of years before any construction commenced.

I was very happy and decided not to drill him for any more information (figuring my accounts were in the right hands.

Happy Happy Joy Joy, Lee T

 

[WebBoard]

Ian (NSW)

Reply: 1.1.1.1.1.1.1.1.1.1
From: Mike .


Re: Build To Rent Follow Up
From: Ian (NSW)
Date: 05 Oct 2000
Time: 19:52:38


Thanks for info Lee...well done!

Have only just hung up the phone after talking to my accountant about other matters.....bugger!

She can expect a call from me in the morning.

Cheers Ian

 

[WebBoard]

Lee T

Reply: 1.1.1.1.1.1.1.1.1.1.1
From: Mike .


Re: Build To Rent Follow Up
From: Lee T
Date: 06 Oct 2000
Time: 09:26:03

Hey Ian,

Good Luck and let us know how it goes.

Cheers, Lee T