Can some one please tell me how repayments are treated tax wise during construction when PPOR is being developed into 2 units? One of the units will still be PPOR when they're built and the other rented out.
Thank you!
Thank you!
Developing PPOR
- Thread starter Jess Peletier
- Start date
Im not an accountant, typically the IP side would have some deductability as long as the scenario follows steele v ato.
That was a lot more simple, but the base principles may apply
ta
rolf
That was a lot more simple, but the base principles may apply
ta
rolf
In what circumstances would part be deductible?
Thanks Terry.
Rolf, I'll have to look that one up
In what circumstances would part be deductible?
Thanks Terry.
Rolf, I'll have to look that one up
Based on Steele's case. If you are borrowing to construct an investment property with the intention of holding then the interest incurred in relation to the investment property may be deductible.
Thanks Terry Much appreciated!
Much appreciated!If one unit was to be held as ppor and the other sold, would any portion be deductible then?
see my answers above!
Because the second unit is not income producing my thought was no , but I want to be clear
So in a nutshell if it's not rented is not deductible.
So from the ATO's perspective developments are not investments unless they're held and rented. Developing for capital gains aren't counted.
So in a nutshell if it's not rented is not deductible.
So from the ATO's perspective developments are not investments unless they're held and rented. Developing for capital gains aren't counted.
Because the second unit is not income producing my thought was no , but I want to be clear
So in a nutshell if it's not rented is not deductible.
So from the ATO's perspective developments are not investments unless they're held and rented. Developing for capital gains aren't counted.
Do a search for Steele's case on the ATO legal database. Interest can be deduction while a property is not rented.
Well that was a fun thing to do on a Saturday! I think my brain might be bleeding.
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Many people quote Steele's case but also forget Temelli's case where the interest wasn't deductible. Temelli was after the decision in Steele's case and in fact quoted many of the decisions made in Steele's case.
. In Temelli's Case, investors bought a vacant block of land, intending to erect a luxury house on it for rental. They paid some hundreds of dollars to have plans of the proposed house drawn up by an architect, but took no further action towards construction of the dwelling and renting it out. The Federal Court did not allow a deduction for interest and rate expenses incurred on the land, saying at ATC 4721; ATR 422:
Whilst it can be accepted that the acquisition of the Wyuna Court land and the preparation of plans early in 1989 is evidence of some commitment, those steps fall short of a commitment to the income producing element of the project, being the building of the home.'
The court contrasted the efforts made by these owners with those made by Mrs Steele, considered by the Federal Court in Steele's Case, quoting the efforts made by Mrs Steele, at ATC 4719, ATR 420:
?she obtained the Council's assent to a change of zoning, employed architects and engineers, entered into joint venture arrangements, and pursued the project with some tenacity until litigation with her collaborator put a complete stop to it. She demonstrated her 'commitment' from the beginning by committing $1,000,000 to the venture plus the time, energy and considerable expense of the subsequent architectural and engineering work, and negotiations with the local Council, sewerage authority and prospective joint venturers and financiers.
This indicates that continuing activity, aimed at eventually producing assessable income is required if the costs of holding a property with the idea of later producing income from it are to be deductible.
This was also found in the Administrative Appeals Tribunal case, Ormiston v. FC of T 2005, (2005) 60 ATR 1277 (Ormiston's Case). In that case, deductions for interest and other expenses were allowed for a property that was still not income producing after nearly five years. However, it was shown that the taxpayer had over the whole period made continued efforts in pursuit of the property being income producing. While the AAT had some difficulty understanding the time delay, they found in favour of the taxpayer on the basis that they could not find what other purpose the taxpayer would have had in borrowing the money and incurring substantial interest and other costs as well as the substantial investment of the taxpayer's time and work
. In Temelli's Case, investors bought a vacant block of land, intending to erect a luxury house on it for rental. They paid some hundreds of dollars to have plans of the proposed house drawn up by an architect, but took no further action towards construction of the dwelling and renting it out. The Federal Court did not allow a deduction for interest and rate expenses incurred on the land, saying at ATC 4721; ATR 422:
Whilst it can be accepted that the acquisition of the Wyuna Court land and the preparation of plans early in 1989 is evidence of some commitment, those steps fall short of a commitment to the income producing element of the project, being the building of the home.'
The court contrasted the efforts made by these owners with those made by Mrs Steele, considered by the Federal Court in Steele's Case, quoting the efforts made by Mrs Steele, at ATC 4719, ATR 420:
?she obtained the Council's assent to a change of zoning, employed architects and engineers, entered into joint venture arrangements, and pursued the project with some tenacity until litigation with her collaborator put a complete stop to it. She demonstrated her 'commitment' from the beginning by committing $1,000,000 to the venture plus the time, energy and considerable expense of the subsequent architectural and engineering work, and negotiations with the local Council, sewerage authority and prospective joint venturers and financiers.
This indicates that continuing activity, aimed at eventually producing assessable income is required if the costs of holding a property with the idea of later producing income from it are to be deductible.
This was also found in the Administrative Appeals Tribunal case, Ormiston v. FC of T 2005, (2005) 60 ATR 1277 (Ormiston's Case). In that case, deductions for interest and other expenses were allowed for a property that was still not income producing after nearly five years. However, it was shown that the taxpayer had over the whole period made continued efforts in pursuit of the property being income producing. While the AAT had some difficulty understanding the time delay, they found in favour of the taxpayer on the basis that they could not find what other purpose the taxpayer would have had in borrowing the money and incurring substantial interest and other costs as well as the substantial investment of the taxpayer's time and work
The thing I realized from reading the Steele case was that a) you need to get the job done as quickly as possible, and it's not okay to buy land and sit on it, with a plan to develop in 5 years, and b) you have to keep obviously working toward getting the deal income producing.
Not the lightest read, but the ATO aren't known for their sense of humour. We all have our weaknesses
Not the lightest read, but the ATO aren't known for their sense of humour. We all have our weaknesses
This is what I read - http://law.ato.gov.au/atolaw/view.htm?DocID=TXR/TR20044/NAT/ATO/00001
It doesn't go into the scenario which is probably why it was a hard slog to make any sense of it
Is there a better link that outlines the full scenario?
My impression was that she continued to pursue the end goal of an income producing asset which made the difference in the end.
It doesn't go into the scenario which is probably why it was a hard slog to make any sense of it
Is there a better link that outlines the full scenario?
My impression was that she continued to pursue the end goal of an income producing asset which made the difference in the end.
Here is a link to the High Court judgment
http://www.austlii.edu.au/au/cases/cth/HCA/1999/7.html
It looks like she purchased in 1980 and sold in 1987 without ever having finished developing.
http://www.austlii.edu.au/au/cases/cth/HCA/1999/7.html
It looks like she purchased in 1980 and sold in 1987 without ever having finished developing.
The Temelli case mentioned by coastymike is a Federal Court case:
Coskun G. Temelli & Anor v The Commissioner of Taxation of the Commonwealth of Australia [1997] FCA 756
http://www.austlii.edu.au/au/cases/cth/FCA/1997/756.html
Coasty, Temelli was heard before the Steele High Court Decision which was in 1999.
A Paragraph from the conclusion of the judgment:
It seems Steele on the other hand incurred her expentiture in the pursute of producing an income. From one of the HC justices:
Coskun G. Temelli & Anor v The Commissioner of Taxation of the Commonwealth of Australia [1997] FCA 756
http://www.austlii.edu.au/au/cases/cth/FCA/1997/756.html
Coasty, Temelli was heard before the Steele High Court Decision which was in 1999.
A Paragraph from the conclusion of the judgment:
It seems Steele on the other hand incurred her expentiture in the pursute of producing an income. From one of the HC justices:
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