Private ruling: Income tax – interest deduction
Date of advice: 30 August 2018
Published: October 2018
Ruling period: Year ending 30 June 2019 | Year ending 30 June 2018
Date scheme commenced: 1 July 2017

Ruling: Q1: Are you entitled to a deduction for interest expenses incurred on borrowings to acquire land on which you intend to build a rental property? | A1: Yes. In your circumstances, you purchased land with the intention of building a rental property on it to produce assessable income. Since the land was purchased you have made continuous efforts to fulfil this intention. You currently have a contract with a builder, have found employment and are waiting on financial approval. You are entitled to claim a deduction for the interest expense in the 201X-1X and 201X-1X financial years. You will need to reassess your situation if your venture becomes dormant or the holding of the asset becomes passive. This would include where the building contract is abandoned and/or you are unable to secure finance.

Relevant facts and circumstances: You purchased a block of land in October 20XX. You purchased the land with the intention to build a rental property. You borrowed money from a bank to fund the purchase of the land. In September 20XX you entered into a contract with a builder to build the rental property. In May 20XX the builder went into administration before development of the property began. You obtained quotes from a number of builders in September and October 20XX. In November 20XX you entered into a contract with a new builder. In December 20XX, before the building of the rental property was about to start, you were made redundant. As a result of the redundancy, you didn’t have the financial capability to borrow for the construction of the property until you found permanent or reliable employment. You have not ceased your contract with the builder. You have an agreement with the builders to put the contract on hold until you are able to obtain finance. You have since found employment and are waiting on the finance approval. You will commence building as soon as you are able to secure finance.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 8-1