ATO Interpretative Decision
ATO ID 2002/59 (Withdrawn)
Income Tax
Legal expenses incurred on Assignment of a Crown LeaseFOI status: may be released
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This ATO ID is withdrawn as the ATO View on this issue is contained in the Rental Properties GuideThis document incorporates revisions made since original publication. View its history and amending notices, if applicable.
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Is a taxpayer entitled to a deduction under section 25-20 of the Income Tax Assessment Act 1997 (ITAA 1997) for the full amount of legal expenses incurred on the assignment of a crown lease where the property was used partly for private purposes?
Decision
No. A taxpayer is entitled to only a partial deduction under section 25-20 of the ITAA 1997 for legal expenses incurred on the assignment of a crown lease as the property was used only partly for private purposes.
Facts
The taxpayer acquired a leasehold property.
The property was held under a crown lease with a term of 99 years.
The taxpayer used the leasehold property as their residence for a number of years.
Later the taxpayer rented out the property for the purpose of producing assessable income.
The taxpayer has now disposed of the leasehold property by way of assignment of the lease to a third party.
The taxpayer incurred legal expenses in relation to preparing, registering and stamping the assignment of the lease.
Reasons for Decision
Subsection 25-20(1) of the ITAA 1997 provides that a deduction is allowable for the costs of preparing, registering or stamping an assignment or surrender of a lease of property where the property has been used solely for the purpose of producing assessable income.
Under subsection 25-20(2) of the ITAA 1997, if the leasehold property was used partly for income producing purposes the deduction is allowed to the extent that the property was used for income producing purposes.
Although the term 'lease' is not defined in the ITAA 1997 the general law requirement is that a lease must be granted for a definite period. A crown lease with a term of 99 years is a 'lease' for the purposes of section 25-20 of the ITAA 1997.
As the property was not solely used to produce assessable income, subsection 25-20 (2) of the ITAA 1997 requires that the expenditure incurred be apportioned to reflect the period when the property was held for income producing purposes. It is appropriate to apportion on the basis of the period of time that the property was income producing, using the following calculation:
Expenditure incurred * (Number of weeks the property was income producing / Total number of weeks the property was held by the taxpayer
The taxpayer is entitled to a deduction under subsection 25-20(2) of the ITAA 1997 calculated on this basis for a portion of the legal expenses incurred in preparing, registering and stamping the assignment of the lease.
Date of decision: 31 August 2001Year of income: Year ended 30 June 2001
Legislative References:
Income Tax Assessment Act 1997
section 25-20
subsection 25-20(1)
subsection 25-20(2)
ATO ID 2001/614
ATO ID 2002/58
Keywords
Crown leases
Legal expenses
Assignment of lease
Termination of leases
Disposal of assets
ISSN: 1445-2782
| Date: | Version: | |
| 31 August 2001 | Original statement | |
| You are here | 20 January 2006 | Archived |