- adamwParticipant@adamwJoin Date: 2005Post Count: 27
I believe this question has been answered here before – am I correct in thinking interest incurred while building an investment property is claimable as an expense? I believe there is a ruling (wish I could find the link) that demonstrates this.
I saw something that worried me when I was reading Australian Property Investor Magazine – there was a story in the Feb issue about a nightmare of a building process that dragged on and on, and the article mentioned that they had to add the interest expense to the cost base as it is not immediately deductible against income!! As far as I know this is incorrect.
Anyone able to confirm or deny?
AdammapleleafMember@mapleleafJoin Date: 2005Post Count: 51
Our Australian Property Investing magazine arrived toady and in the Editor’s note there is reference to that article you mentioned. They suggest contacting ATO (www.ato.gov.au) regarding the tax rules.
The magazine states ” As a general principle, the ATO’s ruling allows a taxpayer who is building an investment property to claim the interest on the borrowings as a deduction against the property (and therefore its availability for rent), provided that they can demonstrate that the property under construction is intended for income prodcuing (not private) activities.”
Hope this helps!
Achieve the Dream!RikkyMember@rikkyJoin Date: 2005Post Count: 313
Ussally if it is a deveopement that you are going to on sell , the interest will be added as a capital expence. However if you prove that the property was built to rent out you maybe ok to claim it.
Your accountant should be able work out the best way around it.
We buy propertys cash
[email protected]DerekMember@derekJoin Date: 2004Post Count: 3,544
Yes – you can claim interest incurred in a house and land approach to property investment. Any interest incurred on the land and also during the construction phase is deductible provided the intent is to build an income earning asset – which you are doing.
There is a test case at the ATO which recognises the validity of such deductions and it is commonly referred to as the Steele case. If your accountant is not prepared to include these interest deductions then get them to search for the Steele Case ruling or find another accountant.
By the way the couple in question have since gone back to their accountant who has reviewed his/her earlier stance. I got in touch with the couple via API and informed them of the Steele case ruling.adamwParticipant@adamwJoin Date: 2005Post Count: 27
Thanks to everyone for their insights.
Sad to see a mag like API publishing something like that – I’m sure I’m not the only one who freaked out a bit after reading that paragraph!
Derek – Glad to hear you were able to help them! It could definitely have a huge impact on cash flow getting that wrong!