Edited version of your written advice

Authorisation Number: 1051202153512

Date of advice: 21 March 2017

Ruling

Subject: Deduction for deferred stamp duty

Question

Are you entitled to claim a deduction for the payment of deferred stamp duty?

Answer:

No.

This ruling applies for the following period

Year ended 30 June 2017

The scheme commenced on

1 July 2016

Relevant facts

You purchased a residential property in a relevant Australian State or Territory.

The property was initially your principal place of residence, until you rented it out.

You deferred the payment of stamp duty under the relevant Government Home Buyer Concession scheme.

One of the eligibility criteria for this scheme is that at least one applicant must occupy the home as their principal place of residence for a continuous period of 12 months starting within 1 year of completion of the eligible transaction.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 25-20(2)

Reasons for decision

Deductible expenditure

Section 25-20 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that:

(1) You can deduct expenditure you incur for preparing, registering or stamping:  

(a)  a lease of property; or

(b)  an assignment or surrender of a lease of property; if you have used or will use the property solely for the purpose of producing assessable income.

(2) 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 relevant State or Territory satisfies a general law requirement of a lease in that leases in the relevant State or Territory are granted for a definite period. Therefore, section 25-20 of the ITAA 1997 applies to allow costs incurred in the preparation, registering and stamping of a lease property in the relevant State or Territory that will or has been held by the taxpayer for the purpose of producing assessable income.

The expenditure is allowable as a deduction to the extent that the property is used for income producing purposes in that income year.

Where a property was acquired in an income year and only used for income-producing purposes in that income year, a deduction for the full amount of stamp duty under section 25-20 of the ITAA 1997 would be allowable.

Conversely where a property was not used for any income producing purpose in the year when the expenses were incurred no deduction would be allowable.

The phrase “will use” in subsection 25-20(2) of the ITAA 1997 is a reference to the actual use (ATO ID 2012/36) in that year.

Taxation Ruling TR 97/7, paragraphs 16 and 17 states:

Presently existing liability

16. A loss or outgoing may be incurred for the purposes of section 8-1 even though no money has actually been paid out. In W Nevill and Company Ltd v. FC of T (1937) 56 CLR 290 at 302 it was said:

'the word used is 'incurred' and not 'made' or 'paid'. The language lends colour to the suggestion that, if a liability to pay money as an outgoing comes into existence, [the section is satisfied] even though the liability has not been actually discharged at the relevant time ... it is only the incurring of the outgoing that must be actual; the section does not say in terms that there must be an actual outgoing - a payment out.'

(See also New Zealand Flax Investments Ltd v. FC of T (1938) 61 CLR 179 at 207 (New Zealand Flax); FC of T v. James Flood Pty Ltd (1953) 88 CLR 492 at 506 (James Flood); Nilsen Development Laboratories Pty Ltd and Ors v. FC of T (1981) 144 CLR 616 at 624 (Nilsen Development Laboratories); FC of T v. Firstenberg 76 ATC 4141 at 4148; (1976) 6 ATR 297 at 305.)

17. This proposition was confirmed by the High Court in FC of T v. Energy Resources of Australia Limited 96 ATC 4536; (1996) 33 ATR 52 (Energy Resources) when, quoting from James Flood, it said (ATC at 4539; ATR at 56):

'Section 51(1) "has been interpreted to cover outgoings to which the taxpayer is definitively committed in the year of income although there has been no actual disbursement".'

Although TR 97/7 relates to Section 8-1 of the ITAA 1997, the principles are relevant in your circumstances.

An apportionment of the relevant expenses can only be made where in the income year when the costs were incurred the property was used for both income producing purposes and non-income producing purposes.

As the legislation does not provide that the deduction be amortised over either a set period of time or for the duration of the lease it is implicit that the expense can be deducted only in the year that the expense is incurred.

You have incurred the liability to pay the stamp duty at the time you purchased the property, even though you were able to defer the actual payment until a later date.

In your case as there was no income producing use of the property in the year you incurred the expense (that is the year ended 30 June 2012) none of the lease expenditure is allowable under section 25-20 of the ITAA 1997.