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Edited version of your private ruling
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Ruling
Subject: Sales tax
Question
Can you claim a deduction for a portion of the stamp duty you incurred on lease documents in relation to your ACT property?
Answer
Yes.
This ruling applies for the following period
Year ended 30 June 2012
The scheme commenced on
1 July 2011
Relevant facts
You and your spouse are purchasing a property prior to 30 June 2012 in the Australian Capital Territory (ACT).
As part of the purchase agreement, the current owners will rent the property back to you for six months. After that time, you intend making the property your principal place of residence for the foreseeable future.
As a freehold title cannot be obtained for properties in the ACT, properties are commonly acquired under a 99 year Crown lease.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 25-20
Reasons for decision
Section 25-20 of the ITAA 1997 states the costs of preparing and registering a lease and the cost of stamp duty on a lease are deductible to the extent to which the property has been used, or will be used, for the purpose of producing assessable income.
Although the term lease is not defined in the taxation legislation, 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.
In your case, your property will be acquired under a Crown lease and, as stated above, is considered a lease for the purposes of section 25-20 of the ITAA 1997.
Subsection 25-20(2) of the ITAA 1997 states that if you have used, or will use, the leased property only partly for the purpose of producing assessable income, you can only deduct the expenditure to the extent that you have used, or will use, the leased property for that purpose.
In your case, your property will be available for rent from the time it was purchased, for six months, when the property will become your principle residence. Therefore, as the leased property will be only partly used for the purpose of producing assessable income you will need to apportion any deduction claimed for the stamp duty incurred, in relation to the lease, to reflect that use.
Any apportionment would need to be reasonable and reflect the period that you reasonably expect to hold the property, as well as any future intention to again use the property for the purpose of producing assessable income. Providing your expectations and intentions are reasonable at the time you claim the deduction, there will be no consequences if your expectations and intentions subsequently change.
Any deduction amount will need to be further apportioned to reflect the interests in the property you and your spouse hold. Taxation Ruling TR 93/32 discusses the division of net income or loss between co-owners of a rental property. The ruling explains that the loss or income from a rental property must be shared according to the legal interest of the owners, except in those very limited circumstances where there is sufficient evidence to establish that the equitable (or beneficial) interest is different from the legal title. While your interest in the property is that of lessee, the same principles apply and you will need to further apportion the stamp duty deduction according to the interests each of you hold.
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