Interest tax deduction on home-build

We recently bought a block of land near Sydney, on which are going to build a project home once the DA is in place.

We will obviously be paying a lot of interest on the loan from now until when the house is completed. I understand that it is possible to tax deduct the interest on the loan if the house is considered to be an IP. This is sufficiently attractive for me to consider letting the house for a short while rather than occupying it ourselves.

The ATO website is not particularly clear in this area, so I would really appreciate some guidance with these questions:

1. how long we would need to let the house for after construction for it to be considered an IP?

2. can we claim deductions for interest during the whole DA approval and build periods?

3. do I simply claim the deduction from my 2009/2010 income through my e-Tax return next year, or is it spread over 5 yrs? I presume there is no way of claiming the money any earlier?

4. does any of this effect my rights to claim the first time buyers benefits? (this is the first house we have owned in Australia)

Search this site and ATO for the "Steele" case. Much info can be found. Basically if you buy a block of land with the intention of producing an income producing asset outgoings such as interest are deductable, no time limit set but I'm sure there is one if you push your luck!

10 seconds searching found these:

I only know what I have done myself, talk to a property accountant for more info because there can be traps I'm sure.
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ATO will look at all the evidence in an audit. The shorter the time actually rented out, the less convincing your facts will be without compelling evidence of intention.

Where there is more than one intention, deductions may be scaled back or denied.

Where there is a scheme with a dominant purpose of obtaining a tax benefit, the whole amount may be denied.

An IP does not qualify for the FHOG.


Thanks for the thorough replies - sounds like it is in our case (as first time buyers in Australia) it better just to bank the FHO benefits and not bother trying to declare it as an IP as the tax saved won't be much more.