Tax Deductions for buying a new IP - Settlement costs (WA)

[Tano]

Hi,
Can anyone advise on which items are tax deductible for a new investment property. These items are pulled from the Final Settlement bill.

1. Council Rate- rate enquiry fee
2. Landgate -enquiry fee
3. Office of state revenue land tax -enquiry fee
4. Registration of transfer
5. Settlement Agent Fee
6. Title search -fees
7. Water Corp -rate enquiry fee
8. Loan establishment fees
9. Stamp duty charged on a mortgage

 

[Paul@PFI]

Hi,
Can anyone advise on which items are tax deductible for a new investment property. These items are pulled from the Final Settlement bill.

1. Council Rate- rate enquiry fee CAPITAL
2. Landgate -enquiry fee CAPITAL
3. Office of state revenue land tax -enquiry fee CAPITAL
4. Registration of transfer CAPITAL
5. Settlement Agent Fee CAPITAL
6. Title search -fees CAPITAL
7. Water Corp -rate enquiry fee CAPITAL
8. Loan establishment fees DEDUCTIBLE OVER UP TO 5YR BASED ON PRORATA
9. Stamp duty charged on a mortgage DEDUCTIBLE OVER 5YR ALSO

Stamp Duty on transfer - CAPITAL
Legals = CAPITAL
BANK LOAN FEE = 5 YR
SETTLEMENT adjustments for rates, water, etc - DEDUCTIBLE WHEN PAID ON SETTLEMENT but if credited reduces cost-base.


Paul

 

[Tano]

Thanks Paul. I will rewrite it a bit cleaner for anyone else that sees this thread. So i will only give my accountant the Deductible Expenses list for this tax year , and the Capital Expenses when i decide to sell it one day.

Capital Expenses:

• Council Rates- rate enquiry fee
• Landgate -enquiry fee
• Office of state revenue land tax -enquiry fee
• Registration of transfer
• Settlement Agent Fee
• Title search -fees
• Water Corp -rate enquiry fee
• Stamp Duty on transfer
• Legals

Deductible Expenses:

• Loan establishment fees - Deductible over 5 years (pro rata)
• Stamp duty charged on a mortgage - Deductible over 5 years (pro rata)
• Bank Loan Fee - Deductible over 5 years (pro rata)
• Settlement adjustments for rates, water, etc - DEDUCTIBLE WHEN PAID ON SETTLEMENT but if credited reduces cost-base.

 

[westminster]

I just throw everything at my accountant

 

[Tano]

I just throw everything at my accountant

Yep , good idea. I was attempting to get everything ready before i see him. It was still a good learning exercise.

 

[s0805]

SETTLEMENT adjustments for rates, water, etc - DEDUCTIBLE WHEN PAID ON SETTLEMENT but if credited reduces cost-base.
Paul

Paul, i am confused with this point.....are you suggesting all the adjustments done on settlement are deductible....what you mean by credited?
my settlement doc has my part of council rates (paid till EOFY) reimbursed to vendor, water rates paid till EOFY (credit in this account), part my BC fees paid for that quarter....

 

[GaryT]

Stamp Duty on transfer - CAPITAL

SETTLEMENT adjustments for rates, water, etc - DEDUCTIBLE WHEN PAID ON SETTLEMENT but if credited reduces cost-base.


Paul
www.pricefinancial.com.au

Credit rental expense settlement adjustments forms part of the cost base?

Can we have some authority for this contention please?

I would have thought that it is would have the character of income and form part of the assessable income for the property.

 

[Tano]

My accountant verified Paul's answer's as correct.

 

[s0805]

Credit rental expense settlement adjustments forms part of the cost base?

I am newbie in this area....can you explain above....like water rates paid till end of year and account is in credit or something like that...am I on right track...

 

[GaryT]

My accountant verified Paul's answer's as correct.

Still am not convinced.

I am assuming Paul is talking about a credit adjustment such that the settlement adjustment is in favour of the purchaser.

If an adjustment is made in favour of the vendor, the amount of the adjustment is assessable to the vendor (Goldsbrough Mort and Co Ltd v FCT 76 ATC 4343) and deductible to the purchaser (FCT v Morgan (1961) 106 CLR·517).

Although these two cases only consider the situation where the adjustment is made in favour of the vendor, there does not appear to be any reason why the same result would not occur if the adjustment was made in favour of the purchaser.

Further, it is interesting to note that Subdivision 20-A specifically includes in assessable income amounts received as recoupment of deductible amounts (this would include amounts deducted for rates). As the term 'recoupments' includes 'indemnity', this would cover adjustments - refer to Goldsbrough Mort.

I know that tax law is often not logical but it beggars belief that a settlement adjustment in favour of the vendor is on revenue account whilst the same adjustment in favour of the purchaser suddenly changes character to capital.

I might be wrong but we really need more verifiable substantiation other than just my accountant said so.

 

[Rob G.]

You are specifically reimbursing the vendor for their prepayment of revenue expenses on the property you now own.

The reimbursement makes this your prepayment of rates etc.

Cheers,

Rob

 

[s0805]

Gary/Rob, so what you saying is all the adjustments paid to vendor from purchaser will be deductible....but what about the case where solicitor has made sure as part of adjustments all the rates/fees are pre paid until end of june....as part of this calculation they have figured out throughout the year property was owned by vendor for 265 and 100 days by me....how do you then figure out which to claim and which is capital base......

thoughts pls...

 

[GaryT]

In my opinion neither a positive or a negative adjustment is capital. Any adjustment is simply reflected in the net profit/loss of the rental property for the relevant year.

In your example if the rates are in arrears. then usually the vendor pays for the outstanding rates at settlement by drawing a cheque made out directly to the council. This reduces the amount the purchaser pays on settlement by the amount owed to the council. A further adjustment is then made for the 100 days that you are liable for in favour of the vendor.