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Ruling

Subject: Rental property deductions

Questions:

1. Is the fee paid deductible against rental property income?

Answer:

No.

2. Is the fee paid included in the cost base of the property for capital gains tax (CGT) purposes?

Answer:

Yes.

3. Is the annual 'administration fee' deductible against rental property income?

Answer:

Yes.

This ruling applies for the following period

Year ending 30 June 2012

Year ending 30 June 2013

Year ending 30 June 2014

The scheme commenced on

1 July 2011

Relevant facts

You and your spouse purchased a rental property through an organisation set up to provide houses for investors to build.

A fee was paid to the organisation in the 2011-12 financial year once the property was built and available for rent.

The organisation does all the administration and claims in relation to the property and charges an administration fee.

The property is leased through a separate real estate agent.

You and your spouse handle all the rental income and deductions in relation to the property.

Relevant legislative provisions

Income Tax Assessment Act 1997 - Section 8-1

Income Tax Assessment Act 1997 - Section 110-35

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. 

In your case, a fee was paid to the organisation set up to provide houses for investors to build. Even though the fee was not paid until the property was built and available for rent, it was incurred in relation to the acquisition of the property. Therefore, the fee is considered to be a capital expense and specifically excluded as a deduction under section 8-1 of the ITAA 1997.

The expense would be included, however, under the second element of the cost base for CGT purposes which includes the incidental costs incurred to acquire the CGT asset or that relate to a CGT event that happens in relation to the asset. These incidental costs include:

· professional fees including the remuneration for the services of a surveyor, valuer, auctioneer, accountant, broker, agent, consultant or legal adviser

· costs of transfer

· stamp duty and other similar duty

· costs of advertising or marketing (but not entertainment) for a buyer or seller

· valuation or apportionment costs

· search fees relating to a CGT asset (such as fees to check land titles and similar fees, but not travel costs to find an asset suitable to purchase)

· the cost of a conveyancing kit (or similar cost), and

· borrowing expenses (such as loan application fees and mortgage discharge fees).

As stated above, 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.

In your case, you incur an annual administration fee in relation to an income producing rental property and is therefore a deductible expense under section 8-1 of the ITAA 1997

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