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  • Profile photo of new2investnew2invest
    Participant
    @new2invest
    Join Date: 2010
    Post Count: 36

    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?

    Cheers

    Profile photo of tanner892tanner892
    Participant
    @tanner892
    Join Date: 2013
    Post 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.

    Profile photo of new2investnew2invest
    Participant
    @new2invest
    Join Date: 2010
    Post Count: 36

    sitecost = cost to determine the type of slab/foundation for the house to sit on Class ‘M’ or Class ‘H’ etc..

    I had to pay 10K to upgrade my slab

    • This reply was modified 3 years, 9 months ago by Profile photo of new2invest new2invest.
    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,110

    Nope cannot claim this as it is a capital cost.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
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    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of Jacqui MiddletonJacqui Middleton
    Participant
    @jacm
    Join Date: 2009
    Post Count: 2,539

    As the others said. It’s a capital cost. And you cannot claim any “claimable immediately” items till it is available for rent anyway.

    Jacqui Middleton | Middleton Buyers Advocates
    http://www.middletonbuyersadvocates.com.au
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    VIC Buyers' Agents for investors, home buyers & SMSFs.

    Profile photo of new2investnew2invest
    Participant
    @new2invest
    Join Date: 2010
    Post Count: 36

    Looks like I will NOT be claiming this then. Thank you all for your response.

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,110

    . And you cannot claim any “claimable immediately” items till it is available for rent anyway.

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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)

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
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    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of Richard TaylorRichard Taylor
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    @qlds007
    Join Date: 2003
    Post 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”.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
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    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
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    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.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
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    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of Jacqui MiddletonJacqui Middleton
    Participant
    @jacm
    Join Date: 2009
    Post 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.

    Jacqui Middleton | Middleton Buyers Advocates
    http://www.middletonbuyersadvocates.com.au
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    VIC Buyers' Agents for investors, home buyers & SMSFs.

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,110

    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.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

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