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Edited version of your private ruling
Authorisation Number: 1012212947425
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Ruling
Subject: Deduction-deposit bond
Question 1
Are you entitled to a deduction for the cost incurred in obtaining a deposit bond guarantee?
Answer:
No.
Question 2
Does the deposit bond guarantee form part of the cost base of the property for capital gains tax purposes?
Answer:
Yes.
This ruling applies for the following periods
Year ended 30 June 2010
Year ending 30 June 2011
Year ending 30 June 2012
Year ending 30 June 2013
The scheme commenced on:
1 July 2009
Relevant facts
You are intending to acquire a rental property.
You paid a fee for a deposit bond which guaranteed the payment of the required deposit to purchase the property.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1.
Income Tax Assessment Act 1997 Section 110-25.
Reasons for decision
Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses or 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.
Generally the costs associated with the purchase of a property for income producing purposes are not deductible as the expenses are incurred in establishing the profit-making asset and are capital in nature.
The deposit bond fee paid by you to secure your right to purchase a property that is to be used for income producing purposes is a capital expense associated with the acquisition of the income producing property. Therefore, the fee is not a deductible revenue outgoing incurred in deriving rental income from the property and is not deductible under section 8-1 of the ITAA 1997.
The cost of the deposit bond forms part of the cost base of the property for capital gains tax purposes. The fees are included in the first element of the cost base, being the money you paid to acquire the property (section 110-25 of the ITAA 1997).
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