Claiming a deduction for stamp duty?

In the Australian Capital Territory, for a rental property you can claim the stamp duty as a deduction – even though the Henry Review (which I had the misfortune of spend 6 months working on) wanted to remove this anomaly. Why? It’s a lease and not an ownership of all land in the ACT

But, rather than getting worked up about stupid tax outcomes…

What if I bought a block of land in the ACT (legally bought the remainder of the 99 year lease) with the intension of building a rental property? As the building goes up I fall in love with the new design and just before it is finished I decide to rent out my current home and move in to this newly built property. I have claimed the tens of thousands of dollars of stamp duty and the other costs as deductions but I never rent it out.

What will the Commissioner say?

From the ATO’s Rental Property Guide 2013 page 7 (http://www.ato.gov.au/uploadedFiles/Content/MEI/downloads/ind00342353n17290613.pdf )…

“Expenses prior to property being available for rent

You can claim expenditure such as interest on loans, local council, water and sewage rates, land taxes and emergency services levy on land on which you have purchased to build a rental property or incurred during renovations to a property you intend to rent out. However, you cannot claim deductions from the time your intention changes, for example if you decide to use the property for private purposes.”

So it is all about when your intension changed. You need to prove the original intension was to rent out the property. And then you need to show that intension changed and from that date you can’t claim anything. There is not time you have to rent it out, you just need to be able to prove your intension to rent it out so that if the Commissioner turns up it is not just based on your word against his…

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About Ken Mansell

As a stay at home Dad most of the week this is my way of pretending I am still the tax counsel of ASX and SEC listed companies, working at big 4 firms, working at the Federal Treasury, on the Henry Review and at Parliament House for the previous government.
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