Edited version of private ruling

Authorisation Number: 1011703962282

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Ruling

Subject: Property purchased under a Crown lease

Question

Are you entitled to a deduction for a portion of the stamp duty you incurred on lease documents in relation to your ACT property?

Answer

Yes.

This ruling applies for the following periods

Year ended 30 June 2009

The scheme commenced on

1 July 2008

Relevant facts

You and your spouse purchased a residential property with the intention of renting it out into the next year.

The property had been a rental property for a number of years prior to you purchasing it.

You advertised the property privately before formally engaging a property manager.

After about 6 months of ownership you did not find suitable tenants for the property and withdrew the property from the rental market and moved into the property.

The property was acquired under a Crown lease.

You and your spouse have incurred stamp duty, preparation and registration costs on the lease of the property.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1.

Income Tax Assessment Act 1997 Section 20-25.

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

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. 

Generally, costs associated with acquiring a property are not deductible. For example, conveyancing costs and stamp duty on the transfer of the property are considered capital in nature and therefore not deductible. 

However, section 25-20 of the ITAA 1997 states the costs of preparing and registering a lease and the cost of stamp duty on a lease are deductible to the extent to which the property has been used, or will be used, for the purpose of producing assessable income. 

Although the term lease is not defined in the taxation legislation, the general law requirement is that a lease must be granted for a definite period. A crown lease with a term of 99 years is a lease for the purposes of section 25-20 of the ITAA 1997.

In your case, your property was acquired under a Crown lease and, as stated above, is considered a lease for the purposes of section 25-20 of the ITAA 1997.

Subsection 25-20(2) of the ITAA 1997 states that if you have used, or will use, the leased property only partly for the purpose of producing assessable income, you can only deduct the expenditure to the extent that you have used, or will use, the leased property for that purpose.

In your case, your property was available for rent from the time it was purchased, until early in the following year, when the property became your principle 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. 

Any apportionment would need to be reasonable and reflect the period that you reasonably expect to hold the property, as well as any future intention to again use the property for the purpose of producing assessable income. Providing your expectations and intentions are reasonable at the time you claim the deduction, there will be no consequences if your expectations and intentions subsequently change.  

Any deduction amount will need to be further apportioned to reflect the interests in the property held by you and your spouse. Taxation Ruling TR 93/32 discusses the division of net income or loss between co-owners of a rental property. The ruling explains that the loss or income from a rental property must be shared according to the legal interest of the owners, except in those very limited circumstances where there is sufficient evidence to establish that the equitable (or beneficial) interest is different from the legal title. While your interest in the property is that of lessee, the same principles apply and you will need to further apportion the stamp duty deduction according to the interests each of you hold.