Can we still claim the interest ?

[Ross]

Have an IP with my brother which we are going to be demolishing soon to build a triplex.
Working drawings are done but haven't locked in a builder as yet and the way the Perth market is with builders we may be waiting a while to get started.
Tenant moved out in July and we did not sign up a new tenant as we could not guarantee a 6 month lease.
So as the property now is not really "available" for rent, can we keep claiming interest on the loan

Ross

 

[Rolf Latham]

Hiya

While Im not sure, logic would suggest yes.

If Steele Vs ATO held up for vacant lend thence build, I cant see why it wouldnt for house on land thence demolish thence triplex

ta
rolf

 

[Ross]

Thanks Rolf .............I'll read up on that case

Ross

 

[Mry]

Question - What do you intend to do with the triplex? Sell, live in or rent out?

 

[redsquash]

Heres a twist

Question - What do you intend to do with the triplex? Sell, live in or rent out?

If the intention is to rent, then the claim is a tax deduction, but what if 6 months down the track circumstances change.

I have known some people to change their minds.


Given that the place may still been under construction or has not been initially tenated, what is your response MRY.
eg a job transfer or something results in a change of thinking of the investor,thus the intention changes.
An IP will be a PPR. Keep in mind no tenants have entered into the picture.

I believe that up until a change of mind occurs all deductions can be claimed.
No deductions can be claim beyond the change of mind date. Would there be a pro rata charge for some items or, the fact that items have been paid for when the intention was to invest, means no pro rata charge . ie the total legal amount can be claimed

 

[Mry]

Lets leaving changing intent out of it for now, because that will make the answer go on for a few paragraphs longer than I want to go.

If the property is intended to be an IP, the interest is deductible. If they plan to build and sell, the interest is going to be added to the cost base, and not straightaway deductible as they incur it, because the actions do not appear to qualify as a mere realisation on the value of the asset, but to be more akin to actually deriving a profit from the work they are performing. If they are in the business of doing development activities like this, the interest would be deductible since the land and building would be more like trading stock.

But - while the house is being rented, or available for rent, the interest would in my opinion be deductible but I would keep copies or records of your efforts to rent it out in the event of an audit. When it becomes unrealistic to seek tenants for the property, the interest would then change in nature (eg it is unrealistic to expect that you can get tenants in to rent the property when it will be demolished in 4 weeks.)

I hope you have an accountant helping you out here because developments are very tricky items when it comes to the tax treatment, especially with what you are doing.