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Edited version of your written advice
Authorisation Number: 1012723403823
Ruling
Subject: Bank guarantee fees
Question 1
Will the fees relating to the Deposit Power Guarantee used in lieu of a deposit be included in the first element of the cost base of the investment property?
Answer
Yes
This ruling applies for the following period(s)
Income year ended 30 June 2014
The scheme commences on
1 July 2013
Relevant facts and circumstances
You purchased a property that was being constructed in 200x.
You provided a deposit bond in lieu of a deposit to secure the purchase.
You paid fees of $x in relation to the deposit bond.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 8-1
Income Tax Assessment Act 1997 section 110-25
Reasons for decision
Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses or 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 the costs associated with the purchase of a property for income producing purposes are not deductible as the expenses are incurred in establishing the profit-making asset and are capital in nature.
The deposit bond fee paid by you to secure your right to purchase a property that is to be used for income producing purposes is a capital expense associated with the acquisition of the income producing property. Therefore, the fee is not a deductible revenue outgoing incurred in deriving rental income from the property and is not deductible under section 8-1 of the ITAA 1997.
The cost of the deposit bond forms part of the cost base of the property for capital gains tax purposes. The fees are included in the first element of the cost base, being the money you paid to acquire the property (section 110-25 of the ITAA 1997).