Edited version of private ruling

Authorisation Number: 1011813805885

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Ruling

Subject: Rental expenses

Question

Are you entitled to claim a deduction in the 2010 income year for revenue expenses which you incurred from the date of purchase of the vacant block of land to 30 June 2009?

Answer

No.

This ruling applies for the following period

Year ended 30 June 2010

The scheme commenced on

1 July 2009

Relevant facts

You purchased a vacant block of land approximately 10 years ago and immediately undertook to commence building a rental property.

The building was completed and available for rent in the 2010 income year.

You incurred both revenue and capital expenses before the property was available for rent.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

Summary

Revenue expenses may only be deductible in the year incurred. Therefore, you are not entitled to a deduction in the 2010 income year for revenue expenses incurred prior to 30 June 2009.

Detailed reasoning

Section 8-1 of the Income Tax Assessment Act 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, or relate to the earning of exempt income.

Timing of deduction

Taxation Ruling TR 97/7 discusses the meaning of incurred and the timing of deductions and generally states that you incur an outgoing at the time you owe a present money debt that you cannot escape even though no money has actually been paid out.

In your case, you incurred on going costs for expenses relating to your rental property from some years ago to 30 June 2009. It is at this time that you owed a present money debt that you could not escape. Therefore, it is at this time that these expenses were 'incurred' for taxation purposes. Where these expenses are deductible, they can only be claimed in the income years they were incurred. You are not entitled to a deduction in the 2010 income year for revenue expenses you incurred prior to 30 June 2009.

Additional information

Where a vacant block of land is purchased and a rental property is later built on it, interest and holding expenses incurred in the interim may be deductible in the year incurred, depending on the circumstances. Factors taken into account include the length of time before income is produced and what continuing efforts were undertaken to have the property built. Please refer to Taxation Ruling TR 2004/4 and ATO Interpretative Decision ATO ID 2001/479 for more information. These documents are available on our website ato.gov.au

If after reviewing these documents you are unsure as to the deductibility of any interest or holding expenses, you may apply for a private ruling on this issue. Included with your application should be all information that is relevant to address the criteria referred to in TR 2004/4 and ATO ID 2001/479. However, you should note that there are time limits for the amendment of tax returns and it is likely that the majority of expenses were incurred in income years that are outside the amendment time limits.

Depreciation and capital works deductions in relation to a rental property are only allowable once a rental property is completed and available for rent.

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