Edited version of private advice

Authorisation Number: 1051969942686

Date of advice: 21 April 2022

Ruling

Subject: Deduction - lease document expenses

Question 1

Are you entitled to a full deduction for the stamp duty and legal expenses incurred under section 25-20 of the Income Tax Assessment Act 1997 for a residential property in the Australian Capital Territory (ACT) that is rented from settlement date for a short period of time?

Answer

No.

Question 2

Are you entitled to a partial deduction for the stamp duty and legal expenses incurred with respect to the acquisition of your residential property in the ACT, where the expenses have been apportioned to take into account the actual and future use of the property over the length of time the property is held?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You purchased a residential property on a crown lease.

You became liable for stamp duty and legal expenses on settlement.

The property was tenanted for a short period of time before it became your main residence.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 20-25.

Income Tax Assessment Act 1997 subsection 25-20(2).

Reasons for decision

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 satisfies a general law requirement of a lease in that leases in that 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 that has been, or will be, used by the taxpayer for the purpose of producing assessable income.

For the purposes of determining deductibility of lease costs, both actual and future use of the property need to be considered. In cases where a property was rented out from the time it was purchased and then later used for private purposes, you will need to apportion any deduction claimed for the preparing, registering or stamping of the lease incurred, to reflect that private use. 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 you were to rent the property for the first six months and would reasonably anticipate holding the property for 10 years, and that 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:

Preparing, registering, or stamping lease costs x months used for income producing purposes (6) / length of time property will be held (in months) (120) x your ownership share.

Further information on lease document expenses when a property is used partly for the production of assessable income can be found in ATO ID 2012/36.