Tax Deductions while building?

[deepindebt]

Hi All, first time poster.

A quick tax question.

From the ATO website I am aware you can claim a tax deduction for interest in respect of land purchased upon which you intend to build an investment property.

My question is can you also claim an income tax deduction for interest you are being charged on funds you have borrowed to build your investment property as the funds are drawn down during construction?

In a similar vein are the holding costs of the land (e.g. water rates and land rates) deductible for the period of time the investment property is being built?

Many Thanks for your considered thoughts on these questions.

 

[boods99]

Hi All, first time poster.

Hi Deepindebt!

A quick tax question.

Sure, fire!

My question is can you also claim an income tax deduction for interest you are being charged on funds you have borrowed to build your investment property as the funds are drawn down during construction?

Yes you can, so long as the original intent was for you to build and rent out the property.

In a similar vein are the holding costs of the land (e.g. water rates and land rates) deductible for the period of time the investment property is being built?

Yes, same as above.

Many Thanks for your considered thoughts on these questions.

You're welcome..

Boods

 

[Propertunity]

Yes to all, as boods said.

 

[deepindebt]

Hi All,

I posed this question to my accountant and below is his response. He seems to believe I am not entitled to claim a deduction and that these expenses get added to the cost base of the property for CGT purposes.

"Not eligible for tax deduction as the property is not available for rental. These costs get added to cost base of the property up until the property is available for rent"

Has anyone been in a similar situation and claimed the deduction for interest on a construction loan and holding costs while constructing an IP?

If so, can you point me to any ATO or other reference material that supports the view that the expenditure is tax deductible so I can educate my accountant? (Assuming he is wrong of couse)

Thanks

 

[Propertunity]

The case you are looking for is Steele's.

http://law.ato.gov.au/atolaw/view.htm?locid='TXR/TR20044/NAT/ATO'&PiT=99991231235958
and

http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/cth/HCA/1999/7.html?query=^steele

You can also google site:somersoft.com "steele"

Here's a thread that might help: http://www.somersoft.com/forums/showthread.php?t=50130

 

[redwing]

Also,

You may wish to review the below

 

[JohnJC]

Also,

You may wish to review the below

Classic!! made me laugh

Yep as redwing pointed out, time for a new accountant....

 

[Terryw]

Hi All,

I posed this question to my accountant and below is his response. He seems to believe I am not entitled to claim a deduction and that these expenses get added to the cost base of the property for CGT purposes.

"Not eligible for tax deduction as the property is not available for rental. These costs get added to cost base of the property up until the property is available for rent"

Has anyone been in a similar situation and claimed the deduction for interest on a construction loan and holding costs while constructing an IP?

If so, can you point me to any ATO or other reference material that supports the view that the expenditure is tax deductible so I can educate my accountant? (Assuming he is wrong of couse)

Thanks

Try these
Steele v. FC of T 99 ATC 4242; (1999) 41 ATR 139
http://law.ato.gov.au/atolaw/view.htm?locid='JUD/99ATC4242'&PiT=99991231235958

TR 2004/4
Income tax: deductions for interest incurred prior to the commencement of, or following the cessation of, relevant income earning activities
http://law.ato.gov.au/atolaw/view.htm?locid='TXR/TR20044/NAT/ATO'&PiT=99991231235958

ATO ID 2001/479
Income Tax
Rental Property - holding expenses on vacant land held for future income producing purposes.
http://law.ato.gov.au/atolaw/view.htm?docid=AID/AID2001479/00001

 

[devo76]

What about subdivision costs.I am in the process of preparing my land for subdivision( existing house on the front and currently rented) Costs so far

Water
sewer
council contributions
sewer encasement
garage removal
etc etc

My accountant said the interest paid for this work could not be deducted and must be added to the cost base.

is this true ???

Should add that the purpose of the subdivision is to build an investment property.

 

[coastymike]

Ask your accountant in writing (you might be charged for it or just rely on free internet advice and your tough luck if it is wrong) why they think the interest will be capitalised. Ask them to refer to Steele's case and the relevant TR and ID TerryW has put up and why their view is different to that of the ATO. Maybe refine Redwing's search a little

 

[snj]

What about the case in off-plan property and this property will be put to the market for rent immediately after the settlement.

When I borrow 10% deposit, can I claim interest deduction from the loan

 

[deepindebt]

Thanks for the responses.

My persistence increased my tax refund by about a grand.

Anyone know a property savvy accountant in Perth they are prepared to share with me?

 

[devo76]

Unfortunately I found this thread after I did my tax return and since he didn't let me claim interest( added to cost base) I'm out of pocket a few grand.
My question is if I convince him it's ok for next
Year during the construction phase.( new accountant if not) can he claim the lost interest deductions from the year before 2010-2011.
Or since I have already done my return I must leave as is and remain on the cost base.

Cheers.

 

[Terryw]

Unfortunately I found this thread after I did my tax return and since he didn't let me claim interest( added to cost base) I'm out of pocket a few grand.
My question is if I convince him it's ok for next
Year during the construction phase.( new accountant if not) can he claim the lost interest deductions from the year before 2010-2011.
Or since I have already done my return I must leave as is and remain on the cost base.

Cheers.

Devo

You can amend previously lodged tax returns and should do that. You would have to claim the deduction in the year it was incurred.

 

[coastymike]

Agree with terry. Time to dump your accountant, get a new one and lodge amended returns. Alternatively get the old accountant to amend and lodge for free since they stuffed up. Dont ask him it is ok with him. He has cost you money.