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Edited version of your written advice
Authorisation Number: 1012674118266
Ruling
Subject: Land tax
Question
Are you entitled to a deduction for your share of the full amount of land tax in the income year it is paid?
Answer:
Yes
This ruling applies for the following periods:
Year ended 30 June 2014
The scheme commences on
1 July 2013
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
You own two properties.
You were assessed for land tax for the land tax years. The properties were rented during these periods.
The land tax assessment for these years issued in the 20XX-XX income year.
You ceased using one of the properties as a rental and commenced using it as your main residence during the year ended 30 June 20XX.
You paid the land tax during the 20XX-XX income year.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1
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. Generally an expense is incurred when it is actually paid: Taxation Ruling TR 94/26.
In the case of a rental property that is rented or available for rent for the full income year, it is clear that expenditure on land tax has the essential character of an income producing expense because it is a compulsory state government impost payable because the property is income producing. It is therefore incidental and relevant to the gaining of assessable income. Further, the occasion of the outgoing is the derivation of rental income because it is that derivation that causes the impost to be payable. In such cases expenditure on land tax is fully deductible.
However, the question arises whether that characterisation of land tax as an income producing expense changes to some extent when the property is also used for non-income producing purposes. ATOID 2001/82 deals with a situation where a property that was rented and subject to land tax as a result of that rental activity, subsequently ceased to be used for rental purposes and became the taxpayer's residence. In that scenario, it was held that there was no need to apportion the land tax to exclude the period after the cessation of the rental activity.
Accordingly you are entitled to a deduction for your share of the land tax in the income year it is paid, without being required to apportion the expense to account for your subsequent private use.