If you buy a block of land with the specific intention of building an investment property to rent out and negative gear, at what point can you start claiming deductions? Do you have to have a completed house and a tenant or can you start when you have nothing but dirt?
You can only claim expenses that are incurred from making income. This means it has to be rented out.
However under the third element of the cost base you might be able to increase the cost base of the land while it is not being rented out from the date you entered the purchase contract to the time it is rented out.
see
http://www.ato.gov.au/individuals/content.asp?doc=/Content/36557.htm&page=2#P12_2381
Once you rent it out you cannot claim these holding costs against the land cost base as you would be double claiming a deduction in the same financial yearThis is what this part below is referring to
Also, you do not include them if you:
- have claimed a tax deduction for them in any year, or
- did not claim a deduction but can still claim it because the period for amending the relevant income tax assessment has not ended.
In english
The cost base is what the land cost you to buy so adding the holding costs onto the cost base reduces any future capital gains tax liability. Hence a future deduction rather than an immediate deduction.
As the purpose of buying the land was to derive an income you incurred holding costs while getting to a point of being able to rent out the land with a house on it.It would be a good idea to talk to an accountant to see if this is allowable in your circumstance.
The information was given to give you an idea of what may be possible when you get advice from your accountant.Hi CHIS
You have to refer here to the High Court Case of Steele v Deputy Commisioner of Taxation. The link is below
http://law.ato.gov.au/atolaw/view.htm?rank=find&criteria=AND~steele~basic~exact&target=JA&style=html&sdocid=AID/AID2001479/00001&recStart=1&PiT=99991231235958&recnum=4&tot=188&pn=ALL:::ALLIn certain circumstances interest and other holding costs can be deductible.
You need to find yourself an accountant that is good with property transactions and run all these questions past him/her. It is worth every cent. We see so many clients enter into transactions on incorrect advice each year.
Annemarie
AccountantI think that as long as you intend to build on the land and to rent, then you can claim interest and other costs from day 1, as per Steele's case.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Terryw wrote:I think that as long as you intend to build on the land and to rent, then you can claim interest and other costs from day 1, as per Steele's case.Hi Terry
That is actually not correct. You have to prove that it is more than just an intention and a very active pursuit. You need to show how you have arcitectural drawings/plans for building. How you have applied to councill for approval, that you have contracted a builder and arranged finance for the building process. It is not good enough just to buy the land and let it sit for a number of years "saying" that the intention is to build and rent. That is why the 5 requirements must be satisfied in order to comply with this ruling.
The Tax Office needs to be satified that the arrangement is not a scheme of some sort and if they feel it is, they can just apply PART IVA!One has to be carefull with the interpretation of this piece of legislation.
Cheers
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