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Edited version of your private ruling
Authorisation Number: 1012317011166
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Ruling
Subject: Property holding charges
Question
Are the holding costs on your rental property deductible for the period when the property was not available for rent up to when the property was sold?
Answer
No.
This ruling applies for the following period
Year ended 30 June 2012
The scheme commenced on
1 July 2011
Relevant facts
You purchased a property over Y years ago and have had it rented or available for rent with agents until mid 20XX, when the last tenants vacated.
You did not live in the property at any stage.
Prior to the last tenants vacating, you decided for financial reasons to sell the property. When this occurred, the tenants were obstructive, and the rental agent was uncooperative.
You used a different agent to market the property for sale.
The property was listed for sale with the agents continually from mid 20XX until it was sold.
You had a contract for sale which was terminated due to unsatisfactory reports.
The inspection reports done while it was for sale indicated that extensive work was needed to bring the property to a condition to make it suitable to present for sale.
You were living in another state at the time the property was rented and were reliant on the rental agent to keep you informed of the property condition.
You had considered to again make the property available for rent, but were unable to do so until the body corporate had completed the maintenance and repair work necessary to the property.
Because of this, you did not take any action such as advertising, or listing the property with a rental agent after mid 20XX.
During the several weeks it took for the repairs to be completed, a buyer, conditional on the repairs being carried out, was found and the property was sold.
Until the property was sold, you incurred charges including water usage, strata levies, council rates, bank interest and charges.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1
Reasons for decision
Section 8-1 of the Income Tax Assessment Act 1997 (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.
Where a borrowing is used to acquire an income producing asset, the interest on this borrowing is considered to be incurred in the course of producing assessable income. With regards to borrowings relating to property, the interest will be deductible to the extent that the property is used to produce assessable income.
From when the last tenants vacated, you had the property continually listed with the selling agents until it sold.
During this time, even though you had considered making the property available for rent, you took no steps to do so, and it was not listed with rental agents, or advertised.
As the property produced no assessable income in this time, and was not made available for rent, under section 8-1 of the ITAA 1997 no deduction for losses and outgoings during this time are allowed. It follows that any holding costs for the property in that income year, including interest, strata levies, water usage and other council charges would also not be able to be claimed as a deduction
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