Edited version of your private ruling

Authorisation Number: 1012611743674

Ruling

Subject: Rental deductions

Question

Are you entitled to a deduction for a portion of the stamp duty incurred in acquiring a property located in a particular state where the property is rented prior to it becoming your home?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 2014

The scheme commences on:

1 July 2013

Relevant facts and circumstances

You purchased a property in a particular state.

The property is currently rented.

The fixed term lease for the property ends during the current financial year and will roll into a periodic lease after this date.

You may move into the property before the end of the current financial year.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 25-20

Reasons for decision

Summary

You are entitled to a deduction for a portion of the stamp duty on your lease as your 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 your state satisfies a general law requirement of a lease in that leases in your state 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 your state that has been, or will be, used by the taxpayer for the purpose of producing assessable income.

In your case, you purchased a property in a particular state in 2014 and it is currently rented. You may move into the property before the end of the financial year. If the leased property was only partly used for the purpose of producing assessable income you would 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. If after acquiring the property actual use varied between income producing and private purposes 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 calculating your deduction, you will need to determine the period of time you would reasonably anticipate holding the property, the usage of the property for the remainder of this time and your ownership share of the property.

For example, if the property was rented for six months and you reasonably anticipate holding the property for 10 years, and you were reasonably likely to use the property as your main residence for the remainder of this time, a claim that would be considered reasonable may be calculated as:

Stamp duty x months used for income producing purposes (6) / length of time property will be held (in months) (120) x your ownership share.