ATO Interpretative Decision
ATO ID 2002/364 (Withdrawn)
Income TaxRental Property - timing of deductions
FOI status: may be released
This ATO ID is withdrawn as the interpretative issue is covered in Taxation Ruling TR 2004/4 and the Rental Property GuideThis document has changed over time. View its history.
Status of this decision: Decision Withdrawn 4 November 2005
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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.
Can the taxpayer claim a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for rates, mortgage interest and real estate agent fees for a rental property from the date the property is listed for rent with a real estate agent if the property was previously their private residence?
Yes. The taxpayer can claim a deduction under section 8-1 of the ITAA 1997 for rates, mortgage interest and real estate agent fees for a rental property from the date the property is listed for rent with a real estate agent as there is a clear connection with the income producing activities of the taxpayer from that date.
The taxpayer owns their main residence.
The taxpayer is required to relocate interstate for work purposes for a period of two years.
The taxpayer will list their residence with a real estate agent as being available for rent during the time they are away.
The taxpayer will incur rates, mortgage interest and real estate agent fees from the date the property is placed with the real estate agent.
Reasons for decision
Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income, except where the outgoings are of a capital, private or domestic nature.
Taxation Ruling TR 2000/17, in considering the decision of the High Court in Steele v. Deputy Commissioner of Taxation (1999) 197 CLR 459; 99 ATC 4242; (1999) 41 ATR 139 (Steele's Case), concludes that the 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'; that is, it 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, being the gaining or producing of assessable income; and
- Continuing efforts are undertaken in pursuit of that end.
While Steele's Case deals with the issue of interest, the principles can be applied to other types of expenditure including rates, mortgage interest and real estate agent fees.
The taxpayer has listed their rental property with a real estate agent. The previous private or domestic purpose of the property (the taxpayer's residence) is replaced by an intention to earn income from the property from the date the property is listed with the real estate agent.
Although there may be a gap between the listing of the property and the actual receipt of income, the expenditure is incurred for the sole purpose of obtaining assessable income from the date the property is listed with the real estate agent. The expenses are not preliminary to the income earning activities, as the property is available for rent at the time the expenses are incurred.
The rates, mortgage interest and real estate agent fees expenses are incurred in gaining or producing assessable income. The taxpayer is therefore entitled to a deduction under section 8-1 of the ITAA 1997 for those expenses incurred from the date the property is listed with a real estate agent.Date of decision: 28 February 2002
Income Tax Assessment Act 1997
Steele v. Deputy Commissioner of Taxation
197 CLR 459
99 ATC 4242
(1999) 41 ATR 139
Related Public Rulings (including Determinations)
Deductions & expenses