Tax deductability
- Thread starter eggnog
- Start date
Generally yes
And also generally when its available for rent. Not when the interest is actually paid.
No. The interest is possibly deductible under the principles of the Steele decision if all of the views of the Commissioner in TR 2004/4 are satisfied...ie Future decision to derive rent is clear and certain ie not too soon. etc.
Hi Paul,
I noticed a different response here to that which you gave in my thread here: http://somersoft.com/forums/showthread.php?t=109161
"Hi Paul. Are you saying that the 6 months interest paid during construction is non tax deductable? - No. The interest is possibly deductible"
Is this because of the difference between an existing home being repaired and new home being built? A different scenario even though both homes are not rented while the loan is incurring interest?
I noticed a different response here to that which you gave in my thread here: http://somersoft.com/forums/showthread.php?t=109161
"Hi Paul. Are you saying that the 6 months interest paid during construction is non tax deductable? - No. The interest is possibly deductible"
Is this because of the difference between an existing home being repaired and new home being built? A different scenario even though both homes are not rented while the loan is incurring interest?
Sounds like he is saying the same thing to me.
Each case on its own merits. I find many questions on SS are framed in the context of someone seeking a Yes response when other conditions may result in further consideration. Often technical. Slider is a great example of someone taking a general comment and seeking to apply it too far and then reading criticism without understanding the scope and contact in which the original words were used. In other words - Be careful how you interpret and read things on SS.
Note that Steele's decision etc does not address a period of renovation. Its about initial construction with a future intent to earn assessable income. Many people have considered Steele's case a weak decision and most people think its about construction interest being deductible. Its more a technical case about the two limbs of s8-1 and the need to "match" deductions with assessable income. Steele's looked at timing differences etc.
The ATO issued TR 2000/17 to address the Steele decision. Read para 22. It denies interest deductions where later capex is later incurred. But its a bit light on details. This matter has always been a concern and should be a source of concern for advisers to give a blanket view that all interest will be deductible.
As a tax practitioner I would be cautious about suggesting that interest during a capital renovation is deductible under the Steele's principles. Its equally arguable I believe (and it may be argued both ways) that if the renovation period incurs capital expenditure that the interest could well be capital expense also.
Happy to discuss. Hope this explains what may appear inconsistent.
Note that Steele's decision etc does not address a period of renovation. Its about initial construction with a future intent to earn assessable income. Many people have considered Steele's case a weak decision and most people think its about construction interest being deductible. Its more a technical case about the two limbs of s8-1 and the need to "match" deductions with assessable income. Steele's looked at timing differences etc.
The ATO issued TR 2000/17 to address the Steele decision. Read para 22. It denies interest deductions where later capex is later incurred. But its a bit light on details. This matter has always been a concern and should be a source of concern for advisers to give a blanket view that all interest will be deductible.
As a tax practitioner I would be cautious about suggesting that interest during a capital renovation is deductible under the Steele's principles. Its equally arguable I believe (and it may be argued both ways) that if the renovation period incurs capital expenditure that the interest could well be capital expense also.
Happy to discuss. Hope this explains what may appear inconsistent.
Hi Paul,
My apolagies if my intent was ill communicated, I greatly appreciate your advice and was certainly not trying to fish for a yes answer. Its actually a little ironic that you interpreted it that way
The main purpose for my re-raising the question was to determine if possibly the answer you provided was based on new construction vs renovation, from the perspective of claiming interest during the working period prior to tenanting. You have articulated your point well however, and I appreciate the follow up response.
I followed up on the ATO website and discovered it does clearly state this:
"To claim deductions for expenses, your property must include a dwelling that is rented or available for rent ? for example, advertised for rent. If you're building a rental dwelling, you can claim deductions for the land while you are building."
- deductions in this case, refers to interest payments.
This seems to clarify, unless the property is advertised/available for rent or tenanted, interest payments are not deductable...bummer.
My apolagies if my intent was ill communicated, I greatly appreciate your advice and was certainly not trying to fish for a yes answer. Its actually a little ironic that you interpreted it that way
The main purpose for my re-raising the question was to determine if possibly the answer you provided was based on new construction vs renovation, from the perspective of claiming interest during the working period prior to tenanting. You have articulated your point well however, and I appreciate the follow up response.
I followed up on the ATO website and discovered it does clearly state this:
"To claim deductions for expenses, your property must include a dwelling that is rented or available for rent ? for example, advertised for rent. If you're building a rental dwelling, you can claim deductions for the land while you are building."
- deductions in this case, refers to interest payments.
This seems to clarify, unless the property is advertised/available for rent or tenanted, interest payments are not deductable...bummer.
See the ATO publication, referred to by Paul TR2000/17
http://law.ato.gov.au/atolaw/view.htm?locid='TXR/TR200017/NAT/ATO/fpF3'&PiT=20020717000001
http://law.ato.gov.au/atolaw/view.htm?locid='TXR/TR200017/NAT/ATO/fpF3'&PiT=20020717000001
ATC 4242; (1999) 41 ATR 139. Steele's case concerns, amongst other things, the deductibility of interest on money borrowed to purchase land intended to be developed. The case involves claims for interest incurred in periods during which no relevant assessable income was derived.
Seems in line with the statement saying you can claim interest for the land..could be read that it only applies to new builds on purchases land?
Seems in line with the statement saying you can claim interest for the land..could be read that it only applies to new builds on purchases land?
Based on that isolated paragraph it could be read that way. But hopefully you won't stop at this.
If it was that easy I would say Yes. However, the ATO ruling on Steele's decision only addresses the Steele's position and doesn't go further. I would be reluctant to advise a client to claim a deduction for interest and rely on the Steele's decision if I was renting the property then cease tenancy to perform capital improvements then re-tenanting without seeking a private ruling.
