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Edited version of your written advice
Authorisation Number: 1012741622753
Ruling
Subject: land tax deductions
Question 1
Is the land tax assessment amount deductible in the year it is incurred?
Answer
Yes.
Question 2
Are you entitled to a deduction for 100% of the land tax?
Answer
Yes.
Question 3
Do you need to apportion the land tax?
Answer
No.
Question 4
Will the Commissioner grant an extension of time in order for the taxpayers to amend their 2011-12 income tax returns?
Answer
Invalid. The period of review has not yet ended.
This ruling applies for the following period:
Year ended 30 June 2012
The scheme commences on:
1 July 2011
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
You and your spouse own your principal place of residence and two rental properties.
Of the two rental properties, one has been rented continually since it was purchased. The other was rented from its purchase in early 2011 until rent ceased in early 2012. This property was then renovated and it became your principal place of residence.
You received a Land Tax notice at the end of 2012. The assessment of land tax was based on land owned as at 31 December 2011.
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, or relate to the earning of exempt income.
Land tax associated with a property that is used to produce assessable income is an allowable deduction.
Taxation Ruling TR 97/7 summarises various propositions of the Courts about when a loss or outgoing is 'incurred' for the purposes of section 8-1 of the ITAA 1997. The ruling states (at paragraph 5), 'As a broad guide, you incur an outgoing at the time you owe a present money debt that you cannot escape.'
Land tax is assessed each calendar year based on land holdings as at midnight on 31 December in the year preceding the assessment year. At this time a taxpayer is 'definitively committed' or 'completely subjected' to the debt, even if they are unaware of it (ATO Interpretive Decision ATO ID 2010/192).
ATO Interpretive Decision ATO ID 2001/82 considers the need to apportion a deduction for land tax if a property ceases to be income producing part way through the year. ATO ID 2001/82 provides the following:
A land owner becomes liable to land tax for the period commencing either 1 January or 1 July (depending on the particular state legislation) if, at a certain point in time (either 31 December or 30 June), he or she satisfies the conditions for its imposition, for example, if the property is being used for income producing purposes. Where a land owner is under an obligation at the start of the land tax financial year to pay land tax because the property is used for income-producing purposes, there will be a sufficient nexus between the outgoing and the production of assessable income for the outgoing to be deductible.
If later in the year, after incurring the expense, the property is sold or it becomes the land owner's residence, there is no requirement to apportion the claim for a deduction for the expense incurred.
You have incurred expenses in relation to land tax on two income producing properties on 1 January 2012. One property was only available for rent from its purchase in early 2011 until early 2012. You then renovated the property and it became your main residence. When you incurred the expense, your property was held for income producing purposes. Therefore, you are entitled to a deduction for the full land tax paid for the property in the 2011-12 income year.
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