| Disclaimer This edited version has been archived due to the length of time since original publication.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 private ruling
Authorisation Number: 1011862321474
This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.
Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.
Ruling
Subject: Interest deduction during rental property redevelopment
Question:
Are you entitled to claim a deduction for your share of the interest on a loan for a rental property when the property is being redeveloped for future income producing purposes?
Answer: Yes.
This ruling applies for the following periods
Year ended 30 June 2011
Year ending 30 June 2012
The scheme commenced on
1 July 2010
Relevant facts
You are the joint owner of a rental property which you and your spouse have rented out for over 10 years.
The property was tenanted until last year. You commenced building works to redevelop the property a month after the tenant moved out.
You are building two new dwellings for rental on the site.
Your intention is and always has been to continue to use the site for investment purposes by renting out the new dwellings once completed.
The new dwellings are now at lock up stage, and based on progress reports from the builders, you realistically hope to have them available for rent approximately one year after building works started.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1.
Reasons for decision
Section 8-1 of the Income Tax Assessment Act 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.
You and your spouse borrowed money to purchase a rental property for income producing purposes. Following a long period of continual rental, you then commenced to redevelop the property for the same purpose.
The interest incurred on these borrowings is not considered preliminary or to have been incurred too soon as it was incurred on money borrowed for the sole purpose of producing assessable income. From the time you commenced planning and building the new dwellings, the intention throughout was to build income producing buildings and there was no private or domestic purpose for holding the property.
Continuing efforts were undertaken in the pursuit of gaining or producing assessable income. The length of time between the vacating of the original rental property, the commencement of construction and the proposed date of the new property becoming available for rent is not considered to be so long that the necessary connection between the interest outgoings and the assessable income is lost.
Therefore, you are entitled to a deduction for your share of the interest incurred in relation to the rental property during the period it is being redeveloped.