I have just recently completed construction (End of April) of a 4 bed IP currently renting for 370/week. The property is slightly positively geared now with the latest interest drop.
It’s almost tax time and I have always done my tax return for the last 5 years but this year it is the first time that I have constructed an IP. I have had to spend $10000 for site cost which was not part of the building contract and was not financed by the bank.
Can I claim this $10K in my tax return? I am using etax from ATO.
If so where would I claim this on etax ?
I have so far paid 12k in interest repayment and already done my depreciation schedule and can claim 5000k for this financial year.
I am already sorted and know what I need to claim so far I just wanted to find out if I can or cannot claim that 10K that I had to take from my savings to pay for the site cost?
Cheerstanner892Participant@tanner892Join Date: 2013Post Count: 25
Well I’m not sure exactly what you mean by ‘site cost’ but the short answer is no, the site costs will be added to the cost base of your property. Any costs associated with constructing a capital asset are capital costs, and form the cost base.Jacqui MiddletonParticipant@jacmJoin Date: 2009Post Count: 2,539
Looks like I will NOT be claiming this then. Thank you all for your response.
. And you cannot claim any “claimable immediately” items till it is available for rent anyway.<i class=”rw-ui-like-icon”></i>0<i class=”rw-ui-dislike-icon”></i>0
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This is not the case Jac – steele’s case shows expenses can be claimed well before any income earning activity. It depends on the circumstances. If a person is borrowing to build an investment property – ie.e one they intend to rent out then the interest and other costs are generally deductible – even though income from rent may be not expected till the next financial year (or later)Richard TaylorParticipant@qlds007Join Date: 2003Post Count: 11,992
Terry, my understanding of Steele was that whilst it was not necessary that the expenditure in question should produce assessable income in the same year in which the expenditure was incurred any expenditure claim in a period prior to the derivation of relevant assessable income was subject to a variety of conditions including “the expenditure is not incurred ‘too soon’, that is not preliminary to the income earning activities and is not a prelude to those activities”.
Yours in Finance
hi Richard – Steele held her land for about 10 years from memory, and never developed it, but intended to and had undertaken activities such as applying for DAs, getting plans done etc. I think the only income she received was from agisting horses on it.
There are more cases, another one where someone claimed expenses on an off the plan property which they intended to be an investment – but they changed their minds and moved in, yet were still able to claim the expenses.
Where someone is building an investment property which they intend to rent out I don’t think there is any issue with claiming expenses before it is rented out. It is not too soon or too preliminary if they can demonstrate intention to rent it out.Jacqui MiddletonParticipant@jacmJoin Date: 2009Post Count: 2,539
It is interesting to observe this very topic was discussed in an article on page 10 of the July 2015 edition of “Your Investment Property” magazine. The consulting tax expert – an adviser specializing in property and taxation notes:
“If you are purchasing the block of land and constructing the dwelling for income-generating purposes, as soon as the property is available for rent (and provided the dwelling is constructed within a reasonable timeframe), the interest expense on the land loan and the interest expense on the construction loan of the dwelling are fully tax deductible during the period of construction.”
The key statement here is “as soon as the property is available for rent”. One must be able to prove a property was available for rent and advertised as such. Tenants often struggle to visualize what furniture will fit in a space, and what an unfinished dwelling will look like (I have seen scenarios where selling agents will push their luck and knock on neighbours doors saying hey your place is similar to the one I am trying to rent out – can these people nip through for a look because they are having trouble visualising their furniture in the property) – so whether there is merit in advertising a property for rent well in advance of completion is a separate matter.
I disagree with that comment – actually it is a correct comment, but only half the story because it doesn’t mention whether interest while constructing is deductible.
Steele never rented her land out at all (except for agistment)
Here is an ATO statement in TR 2000/17
Income tax: deductions for interest following the Steele decision:
12. It follows from Steele that interest incurred in a period prior to the derivation of relevant assessable income will be ‘incurred in gaining or producing the assessable income’ in the following circumstances:
The interest is not incurred ‘too soon’, is not preliminary to the income earning activities and is not a prelude to those activities;
the interest is not private or domestic;
the period of interest outgoings prior to the derivation of relevant assessable income is not so long, taking into account the kind of income earning activities involved, that the necessary connection between outgoings and assessable income is lost;
the interest is incurred with one end in view, the gaining or producing of assessable income; and
continuing efforts are undertaken in pursuit of that end.
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