Private ruling: Expenses - Stamp duty
Published: June 2012
Ruling period: Year ended 30 June 2010
Date scheme commenced: 1 July 2009

Ruling: Q1: Are you entitled to a deduction for the full amount of stamp duty incurred in relation to acquiring a property located in state X where you changed your intention from using it as a rental property to using the property for private use? | A1: No


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 25-20 | Income Tax Assessment Act 1997 Subsection 25-20(1) | Income Tax Assessment Act 1997 Subsection 25-20(2)

Reasons for decision: Summary: You are entitled to a deduction for a portion of the stamp duty on your lease as your property was available for rent for a time. Apportionment of the stamp duty must be reasonable and take into account both the actual and future use of the property. | Detailed Reasoning - Detailed reasoning: 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. | Detailed Reasoning - 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 in state X satisfies a general law requirement of a lease in that leases in the state X 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 on a property in state X that has been, or will be, used by the taxpayer for the purpose of producing assessable income. In your case, you have demonstrated a commitment to rent out the property from the time it was purchased until the time when the property became your principal residence. Therefore, as the leased property was only partly used for the purpose of producing assessable income you will need to apportion any deduction claimed for the stamp duty incurred in relation to the lease, to reflect that use. Although you state that your intention at the time of acquisition was to rent out the property for an indefinite time period, it would be an incongruous outcome if a deduction were available merely by reference to intention at the time an outgoing is incurred. If that were the test, a change in intention immediately following incurrence would entitle a deduction even though the property was never put to an income producing use. For the purposes of determining deductibility of lease costs, both actual and future use of the property need to be considered. During the 12 months following when the expense was incurred, actual use varied between income producing and private purposes - and further in future years, private use is set to continue - meaning a deduction for lease costs can only be claimed in part. Apportionment of the costs to determine that amount which is deductible needs to be reasonable. Therefore in the present case, for example, if it were the case that you 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 using the following apportionment method would be considered reasonable: Lease costs x months used for income producing purposes/length of time property will be held (in months).

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Relevant facts: You and your spouse entered into a contract to purchase a house located in the state X. | You state that your intention for the property at the time of acquisition was to rent out the property for an indefinite period. | The property is held under a crown lease with a maximum term of 99 years. | In acquiring this property you incurred expenditure for stamp duty in transferring the lease. | You took out landlord insurance for a period. The policy details listed showed that you expected the property to be rented for a period. | You had a rental appraisal completed by various property managers, who advised you of the weekly rental income you could expect to receive. | You listed the property for rent with an agent for a period at a weekly rental amount. | You received notice from the agent that they had been unable to locate a tenant due to the price range and due to the 12 month tenancy offered to tenants. | A short time later and within the same income year that the property was first available for rent you sold your existing home and moved into the property. | You listed your existing principal residence for sale and used the proceeds from the sale of your old home to reduce the debt on the loan.