Disclaimer
This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of your private ruling

Authorisation Number: 1012556344208

Ruling

Subject: Rental property expenses

Question 1

Are you entitled to a full deduction for the stamp duty incurred in acquiring a leasehold property located in your particular state in Australia, where the property was rented prior to it becoming your home?

Answer

No.

Question 2

Are you entitled to a deduction for a portion of the stamp duty incurred in acquiring a leasehold property in the specific state, where the expense has been apportioned to take into account the actual and future use of the property?

Answer

Yes.

This ruling applies for the following period

Year ended 30 June 2013

The scheme commenced on

1 July 2012

Relevant facts and circumstances

You purchased a property in the Australian state during the relevant financial year under a 99 year crown lease and you incurred stamp duty on the transfer.

The property was tenanted until 30 June 20XX.

You then moved into the property and you are still living there.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 25-20

Income Tax Assessment Act 1997 Subsection 25-20(1)

Income Tax Assessment Act 1997 Subsection 25-20(2)

Reasons for decision

Summary

You are entitled to a deduction for a portion of the stamp duty on your lease as your property was rented for a time. Apportionment of the stamp duty must be reasonable and take into account both the actual and future use of the property.

Detailed reasoning

Subsection 25-20(1) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a deduction is allowable for the costs of preparing, registering or stamping a lease of a property where the property is used solely for the purpose of producing assessable income.

Subsection 25-20(2) of the ITAA 1997 states that:

A crown lease on property satisfies a general law requirement of a lease in that leases in the specific state are granted for a definite period. Therefore, section 25-20 of the ITAA 1997 applies to allow, or partly allow, costs incurred in the preparation, registering and stamping of a lease on a property that has been, or will be, used by the taxpayer for the purpose of producing assessable income.

In your case, your property was rented out from the time it was purchased until 30 June 20XX, when the property became your principal residence. Therefore, as the leased property was 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.

For the purposes of determining deductibility of lease costs, both actual and future use of the property need to be considered. Since acquiring the property, actual use varied between income producing and private purposes - and further into future years, private use is set to continue - meaning a deduction for lease costs can only be claimed in part. Apportionment of the costs to determine that amount which is deductible needs to be reasonable.

In calculating your deduction, you will need to determine the period of time you would reasonably anticipate holding the property, the usage of the property for the remainder of this time and your ownership share of the property.

For example, if you would reasonably anticipate holding the property for 10 years, and that you were reasonably likely to use the property as your main residence for the remainder of this time, a claim that would be considered reasonable may be calculated as:

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).