Purchasing Costs or Expense ?

[PIppety]

Hi there Dale or anyone else who can help,

I have a letter in front of me from my solicitor and although I know what I have done in the past, I just want to clarify whether I can claim the following as expense deductions rather than purchasing costs ?

Lands Dept Title Search Fees
Lands Dept Plan Search Fees
Land Tax Search Fees
Application to Body Corporate
Lands Dept Settlement Notice
Solicitor Postage and Petties
Solicitor Professional Fee

Any help you could give me would be greatly appreciated.

Thanking you in advance.
PIppety

 

[DaleGG]

Hi PIppety!

NO, all of those would appear to be costs in buying the property and so they will not be tax deductible at all. However, the good news is that they will reduce any Capital Gains Tax in the future if and when you ever sell that property.

So, keep a good record of them along with costs in buying such as an estimate of the number of klms that you have travelled regarding the purchase, inspection costs and the like.

Have fun

Dale

 

[Ryan]

G'day guys,

Sorry Dale, but aren't the following items classed as BORROWING expenses???? therefore spread over 5 years..

Lands Dept Title Search Fees
Lands Dept Plan Search Fees
Land Tax Search Fees


Regards
Ryan

 

[Robert]

Originally posted by Ryan
G'day guys,

Sorry Dale, but aren't the following items classed as BORROWING expenses???? therefore spread over 5 years..

Lands Dept Title Search Fees
Lands Dept Plan Search Fees
Land Tax Search Fees


Regards
Ryan

Hi Ryan

These expenses are only BORROWING expenses if you borrowed the money for it thus the monies borrowed to pay for these expenses are tax deductable.

However, these searches are costs in acquisition of the property and as Dale said can only be used when you sell the property to lower CGT.

or if you run a company structure your accountant, if they're good, can run these through as business expense.

Cheers
Rob

 

[Ryan]

Hi Robert,

These types of SEARCH's are generally required by the lender....

That's what makes these borrowing expenses.

They are expenses directly incurred in taking out a loan for a property.....

Refer to JAN SOMERS BOOK and Tax Guide Rental Properties 2001/2002.

Hope this clears any confusion...

Ryan

 

[DaleGG]

Hi

I am sorry, but perhaps I misunderstood the question. I still believe though that those expenses are involved in buying the property and not with borrowing the funds and accordingly I would not normally claim them.

I checked S25-25 of the 1997 tax act and it basically confirmed my thoughts. So did the tax office case interpretation at
ID 2001/174 for what it is worth

Thank you for questioning me and I hope that I have now resolved any doubts that you might have.
Have fun

Dale

 

[Ryan]

I'm no tax expert Dale, but I still disagree going by what I have read in Jan Somers book & 2001/2002 Rental Properties tax guide....It clearly states search fees/tiltle search fees are borrowing expenses and can be claimed over 5 years...

Still confused and unsure with the conflicting information


RyanJan Somers book & 2001/2002 Rental Properties tax guide

 

[Ryan]

OOP's , .....Should look like this.


I'm no tax expert Dale, but I still disagree going by what I have read in Jan Somers book & 2001/2002 Rental Properties tax guide ....It clearly states search fees/tiltle search fees are borrowing expenses and can be claimed over 5 years...

Still confused and unsure with the conflicting information


Ryan

 

[DaleGG]

Hi Ryan

Welcome to the world of tax - where this is no such thing as certainty whatsoever . . .

Whilst the two people you have quoted are impressive, they are, no disrespect intended, not tax accountants. Furthermore, the law changes more often that most people change their underwear and the information they presented may have been correct at the time they wrote it, but, now is incorrect.

In the end, your own accountant will either claim the costs or they will not based on their understanding of the law.

Good luck, either way

Dale

 

[Ryan]

Dale,

Still Unsure !!!!!

The 2001/2002 Rental Properties tax guide I have mentioned is the latest publication issued by the ATO ......

Has this publication been superseded....

 

[PIppety]

Hey Ryan, where can I get a copy of that guide ?

PIppety

p.s. Looks like I have opened a can of worms !

 

[Les]

G'day Ryan,

And Dale, perhaps

You mentioned the following:-

Sorry Dale, but aren't the following items classed as BORROWING expenses???? therefore spread over 5 years..

Lands Dept Title Search Fees
Lands Dept Plan Search Fees
Land Tax Search Fees


... and I think I remember Jan's quote where she said "some of these CAN BECOME Borrowing Costs IF they were requested by the mortgagee.."

I had a situation where I bought a property from my son - as such, I had no requirement to "search" the property, but my mortgagee wanted this to occur. As such, the costs then became a "borrowing cost" as they were requested specifically by the mortgagee (and NOT by the purchaser!!)

Thoughts, Dale?? Does this hold water?? (I hope so, otherwise my next audit could be a barrel of laughs

Regards,

 

[DaleGG]

Originally posted by PIppety
Hey Ryan, where can I get a copy of that guide ?

PIppety

p.s. Looks like I have opened a can of worms !

Hi

I have tried to attach the PDF of that guide for you to download and use yourself, however, it is too big to attach here. If you email me privately at [email protected] I will attach it to an email and send it to you.

Have fun

Dale

 

[DaleGG]

Originally posted by Les

I had a situation where I bought a property from my son - as such, I had no requirement to "search" the property, but my mortgagee wanted this to occur. As such, the costs then became a "borrowing cost" as they were requested specifically by the mortgagee (and NOT by the purchaser!!)

Thoughts, Dale?? Does this hold water?? (I hope so, otherwise my next audit could be a barrel of laughs

Regards,

Hiya Les!

I can understand your logic, Les, and so it would make sense in this circumstance to claim the costs as borrowing costs.

Perhaps it is my ignorance (and if so I apologise to the forum unreservedly) but in my experiences the solicitors acting for the purchaser undertake such searches to protect the purchaser. They do not do so at the request of the financier and hence my belief that the expenses were incurred in buying the property and not in borrowing money.

Have fun

Dale

 

[DaleGG]

I have "cut and paste" the tax office interpretative decision on this subject for you to read:

Borrowing expenses - Stamp Duty on transfer of title, Lands Title Office search and registration of title fees

--------------------------------------------------------------------------------

Issue


Are the costs associated with the transfer of title on purchase of a rental property deductible as borrowing expenses under section 25-25 of the Income Tax Assessment Act 1997 (ITAA 1997).

Decision


No. The costs associated with the transfer of title on purchase of a rental property are not borrowing expenses for the purposes of section 25-25 of the ITAA 1997.

Facts


The taxpayer took out a loan to purchase a property that was to be used to derive rental income.

Included in the taxpayer's subsequent claim for a deduction of borrowing expenses, were the costs of transferring the title of the property, that is:

·
Stamp Duty on Transfer
·
Land Titles Office Fee
·
Registration of Title Fee
Reasons For Decision


Borrowing expenses are deductible in accordance with section 25-25 of the ITAA 1997. Borrowing is defined in section 995-1 of the ITAA 1997.

Borrowing expenses are expenses which relate to the actual borrowing of monies. Typically these would include costs such as application and other fees charged by the lender (e.g., valuation fees) and stamp duty on mortgage contract.

The costs of transferring the title from the vendor to the purchaser are not costs associated with the borrowing of funds. These are costs of acquisition and would be incurred regardless of whether or not money was borrowed to finance the purchase.

Whilst not deductible as borrowing expenses, these transfer costs may form part of the property's cost base for capital gains tax purposes: refer to section 110 -35 of the ITAA 1997.

Date of decision: 29 June 2001



--------------------------------------------------------------------------------

Legislative References:
Income Tax Assessment Act 1997
section 25-25
section 110-35
section 995-1

Other References
CRS11405

Keywords
Expenses of borrowing
Rental expenses
Rental property
CGT cost base

Date of publication: 10 August 2001

ISSN: 1445-2782

 

[Ryan]

G'day Pippety,

Here's the link to the rental properties 2001/2002 publication..
http://www.ato.gov.au/content.asp?doc=/content/Individuals/22711.htm

Regards
Ryan