Taxation Determination

TD 93/62

Income tax: is a building write-off deduction under Division 10D available to a taxpayer who acquires a building (e.g. house, flat or home unit) in respect of which qualifying expenditure has been incurred by any of its owners?

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FOI status:

1. Yes. A building write-off deduction is available to a taxpayer who acquires a building from an owner, provided that :

(a)

there is an amount of qualifying expenditure as defined in paragraph 124ZG (2A) of the Income Tax Assessment Act 1936 ;

(b)

construction started after 17 July 1985; and

(c)

the building (e.g.house, flat or home unit) is used by the taxpayer for the purpose of producing assessable income as per subsections 124ZH(1), 124ZH(2) and 124ZF(4A).

2. Taxation Ruling IT 2397 at paragraphs 7-9 explains that, for Division 10D purposes, a residential building (or part thereof) is not to be taken to have been used for the purpose of producing assessable income in certain circumstances.

3. Subsections 124ZH(1) and 124ZH(2) set out the rates that apply (these rates and how the qualifying expenditure should be calculated are also set out in Taxation Ruling IT 2640).

Example (i)

Mary purchased a house on 1/7/90 . She has rented the house from the date of purchase. The commencement date of construction was 1/7/86, and it was occupied by the original owner until sold. The qualifying expenditure (construction costs) was $60,000.

Mary can claim the write-off deduction of 4% per annum of the $60,000 whilst the property is income producing until the qualifying expenditure is nil or the expiry on the 25th year deduction period that stated on the first date the building was used for any purpose. (Mary has 22 years left as the building was first used 1/7/87.)

Joseph purchased a house on 1/7/90. He occupied the house until 31/12/90 and for the rest of the year of income it was rented and it was reoccupied by Joseph on 1/7/91.The commencement date of construction was 1/7/88 and it was occupied by the original owner until sold. The qualifying expenditure was $60,000.

Joseph can claim the write-off deduction of 2.5% per annum on the $60,000 for the time it was income producing, ie 1/1/91 till 30/6/91. (Joseph has 38 years left to claim the deduction in those years where the building is income producing, as the building was first used 1/7/89).

Commissioner of Taxation
1/4/93

Previously issued as Draft TD 92/D184

References

ATO references:
NO TOW 05

Related Rulings/Determinations:

IT 2397
IT 2640

Subject References:
building write-off,
Division 10D;
owner-occupier,
residential

Legislative References:
ITAA 124ZF;
ITAA 124ZG,
ITAA 124ZH,
ITAA Division 10D