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Ruling

Subject: ACT lease stamp duty

Question 1

Is a full deduction allowable in the 2009-10 income year for the stamp duty incurred with respect to the acquisition of your leasehold property in the Australian Capital Territory (ACT)?

Answer

No.

Question 2

Is a partial deduction allowable in the 2009-10 income year for the stamp duty incurred with respect to the acquisition of your leasehold property in the ACT, where the expense has been apportioned to take into account the actual and future use of the property over the length of time the property is held?

Answer

Yes.

This ruling applies for the following period

Year ended 30 June 2010

The scheme commenced on

1 July 2009

Relevant facts

You and your spouse acquired a leasehold property in the ACT part way through the 2009-10 financial year. 

The property is held under a crown lease with a maximum term of 99 years. 

You incurred expenditure for stamp duty with respect to the acquisition of the lease on the property. 

The property was tenanted at the time of purchase.

A few months after you acquired the property you decided to move in after the previous tenants had left.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 20-25.

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 ACT 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:

If you have used, or will use, the leased property only partly for that purpose, you can deduct the expenditure to the extent that you have used, or will use, the leased property for that purpose.

A crown lease on property in the ACT satisfies a general law requirement of a lease in that leases in the ACT 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 in the ACT that has been, or will be, used by the taxpayer for the purpose of producing assessable income.

In your case, your ACT property was rented out from the time it was purchased for a period of a few months before it 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. During the year that the expense was incurred, actual use varied between income producing and private purposes - and further in 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 the present case, for example, if it were the case that you would reasonably anticipate holding the property for years, and that you were reasonably likely to use the property as your main residence for the remainder of this time, a claim calculated as follows would be considered reasonable: Lease costs x months used for income producing purposes / length of time property will be held (in months).

Other information

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.