Tax Deductibility of IP Purchase Costs in ACT

From: Jenny F

Hi, I own an IP in the ACT. I read a previous post which stated that, unlike other states, in the ACT purchase costs (stamp duty and conveyancing) are tax deductible in the year of purchase rather than being deductible only against any capital gain when selling.

I have not found this post again, although fortunately I printed it - it was from Bob on 18 Sep 00. I also noted that in the PIA Professional Personal software Ian states the same thing in the help file entry re purchase costs:

From PIA, "In most cases, these purchase costs are only deductible when calculating any capital gains tax liability at the time of sale. In others (e.g. in the A.C.T.), they are deductible in the year of purchase. Check with your local accountant."

In discussing this with my tax agent, he says he has searched but cannot find any reference to this fact to confirm it for me. Not wishing to claim incorrectly, can anyone refer me to an authoritative site or source where I might confirm (or deny) this? Alternatively, a tax agent or accountant in the ACT who might be able to help?

Thanks in anticipation

PS Great site - like the new format much better and is much faster too
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Reply: 1
From: Rolf Latham

Hi Jenny

I thought that tax law of this type was national ? Regardless of state the tax treatment would be the same ?


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Reply: 1.1
From: Terry Avery

I am not 100% sure of this but I believe that in the ACT you don't actually
own the land, you buy what remains of a 99 year lease so maybe for the ACT
purchase costs are deductible in year of purchase because they are costs of
acquiring a long term lease and not buying land. Maybe the Wife can shed
some light on this?
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Reply: 1.1.1
From: Jenny F

Rolf, yes I would have thought tax law was national also, but the PIA software makes the suggestion that ACT is an exception in this particular matter. I presume that, as suggested by T Avery, it is supposedly related to the fact of the 99 year lease basis upon which property is held in the ACT. But my tax agent can find nothing to suggest that this is actually true - so I was hoping someone here might be able to confirm or deny.

I checked the ATO website and the Rental Properties guide clearly states that Purchase Costs (stamp duty & conveyancing)is only deductible when calculating any capital gains tax liability at the time of sale.

Any advice to confirm or deny appreciated.
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From: Paul Doherty

From my experience over the last 2/3 years buying IPs in Canberra only,Stamp Duty and purchase costs are deductable in the fin.year that the purchase takes place in.
In one case stamp duty was paid before the IP
was completed and I was able to deduct it as a stand alone deduction before receiving any income.
Oddly, when I quizzed the ATO about this before proceeding they did not even realise that S/D was deductible in Canberra - so it is no wonder that people get conflicting advice in this regard.I use Jeff Cox and Associates in canberra - he is across these issues.
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From: Jenny F

Thanks very much Paul, that helps a great deal - I might look up your agent here in Canberra and see if he can assist (mine is in Victoria so it is not surprising he is not aware of this). I was thinking of asking for one of those ATO rulings or decisions to have it determined once and for all (as you say there appears to be nothing specific from the ATO). I am only willing to claim it as long as it is kosher and not a "grey area" likely to be reversed if you are audited.

I was trolling around the ATO Law site ( last night though, and found a clue to the issue: The following is copied from the ATO Law site Case Decision No CDS10285 (it is only a partial copy - go to the site for the rest of the details). The last paragraph of the Case Decision is the clue to the issue on ACT lease purchases, although it does not actually say ACT 99 yr lease purchase costs are therefore deductible...

"Case Decision Number:

In relation to real property, is a perpetual lease a lease for the purposes of section 68 of the Income Tax Assessment Act 1936 (ITAA 1936))?

No. A perpetual lease is not a lease for the purposes of section 68 (ITAA 1936). Therefore, expenditure incurred for the preparation, registration, or stamping of a perpetual lease in relation to real property is not an allowable deduction.

A family trust acquired two properties. Both properties are held under perpetual leases. The Crown under the War Services Land Settlement Scheme originally granted the leases in the 1950's and 1960's. State stamp duty was payable on the transfer of the leases from the previous lessees to the family trust. The properties were held wholly for producing assessable income by the family trust.

Section 68 (ITAA 1936) allows deductions for expenditure incurred for the preparation, registration and stamping of a lease, or of an assignment or surrender of a lease of property that is to be or has been held for the purpose of producing assessable income. The term 'lease' is not defined in section 68 (ITAA 1936) or subsection 6(1) (ITAA 1936) and is afforded its ordinary meaning.

At common law, a leasehold interest is created when a landlord confers on a tenant the right of exclusive possession of land for a period that is certain (or capable of being rendered certain), with the intention of conferring such an interest in the land.

The requirement of certainty of period conflicts with the notion of a perpetual lease. A perpetual lease is for an indefinite period of time, and has been more accurately described as a “fee simple subject to a rent charge” in Sevenoaks, Maidstone and Tunbridge Railway Co v London, Chatham and Dover Railway Co (1879) 11 ChD 625.

A perpetual lease is not granted for an ascertainable term. It is not considered a lease in relation to real property and is not a lease for the purposes of section 68 (ITAA 1936).

Perpetual leases may be distinguished from ACT Crown land leases, as these leases are granted for an ascertainable period (99 years). "

Thanks again Paul.
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From: Rasputin .

Gee you learn something new everyday, so what happens after 99 years ?? Is it 99 years from the first sale of property or 99 years every time property is sold. When does this 99 yr period therefore runout ???
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From: Terry Avery

From what I understand the 99 years started from the formation of Canberra
as the nation's capital. There was concern about the imminent expiry of the
leases but the ACT government indicated that the leases would be rolled over
for a further 99 years. Don't want to upset all the voters at the same time
do we? Also it is the fair thing to do with residential housing.
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