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Edited version of private advice
Authorisation Number: 1052248194752
Date of advice: 8 May 2024
Ruling
Subject: Rental property deduction
Question
Are you entitled to a deduction for the interest on the loan relating to the construction of the rental properties in the relevant income year?
Answer
Yes.
Based on the information provided to the Commissioner, the interest meets the requirements for deductibility as per Taxation Ruling TR 2004/4 Income tax: deductions for interest incurred prior to the commencement of, or following the cessation of, relevant income earning activities. Section 26-102 of the Income Tax Assessment Act 1997 does not apply to prevent a deduction as the interest only relates to the construction of the rental properties and not to the land.
This ruling applies for the following period:
Year ended 30 June 2023
The scheme commenced on:
1 July 2022
Relevant facts and circumstances
A couple of years ago, you knocked down your existing main residence to build some units on the property.
You built multiple units.
You own all units solely.
The funder required that the existing loan on the property be cleared.
You paid out the existing loan in full using savings.
You took out a construction loan to build the units.
The construction loan was solely for the construction of the properties. There was no loan component relating to the land, which was paid off.
Construction was carried out by the builders. A deposit was paid to the builder.
Each property had its own construction contract and at each stage of the build, each property was invoiced separately as laid out in building contract.
Construction commenced in the year that you knocked down the main residence.
The units were completed in the following calendar year.
Due to Covid 19 there were delays in the build and the properties were handed over the month after construction finished.
The rental properties were advertised in readiness to identify tenants.
The properties were rented out within the next few months after advertising began.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 8-1
Income Tax Assessment Act 1997 section 26-102
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