| Disclaimer This edited version has been archived due to the length of time since original publication.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 your written advice
Authorisation Number: 1012712684441
Ruling
Subject: Interest
Question
Are you entitled to a deduction for interest from the commencement on a loan to purchase an investment property off the plan?
Answer
Yes.
This ruling applies for the following period
Year ended 30 June 2011
Year ended 30 June 2012
Year ended 30 June 2013
Year ended 30 June 2014
The scheme commenced on
1 July 2010
Relevant facts
You purchased an investment property off the plan in 20XX.
Because the complex was large, construction was not completed until 2014.
You rented the property soon after it was completed.
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.
In Steele v. FC of T (1999) 197 CLR 459; 99 ATC 4242; (1999) 41 ATR 139 (Steele's Case), the High Court considered the deductibility of interest expenses incurred on borrowings to purchase land intended to be developed for income production. It follows from Steele's Case that interest incurred in a period prior to the derivation of relevant assessable income will be incurred in gaining or producing the assessable income in the following circumstances:
• the interest is not incurred 'too soon', is not preliminary to the income earning activities and is not a prelude to those activities
• the interest is not private or domestic
• the period of interest outgoings prior to the derivation of relevant assessable income is not so long, taking into account the kind of income earning activities involved, that the necessary connection between outgoings and assessable income is lost
• the interest is incurred with one end in view, the gaining or producing of assessable income, and
• continuing efforts are undertaken in pursuit of that end.
You have incurred interest on a loan used to purchase a property off the plan which was rented as soon after it was completed. As continuing efforts were undertaken to build the rental property it is considered that the necessary connection between the interest outgoing and the derivation of income is not lost.
As your property has become income producing, you are entitled to claim a deduction for interest expenses incurred on the loan from the commencement of the loan.