Private ruling: Rental property expenses
Published: June 2012
Ruling period: Year ended 30 June 2011
Date scheme commenced: 1 July 2010

Ruling: Q1: Are you entitled to a deduction for interest and other holding costs prior to receiving rental income? | A1: Yes.


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

Reasons for decision: Summary: Section 8-1 of the Income Tax Assessment Act 1997 allows a deduction for all losses and 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. In Steele v. FC of T (1999) 197 CLR 459; 99 ATC 4242; (1999) 41 ATR 139 ( Steele's Case ), the High Court considered the deductibility of interest expenses incurred on borrowings to purchase land intended to be developed for income production. It follows from Steele's Case that interest incurred in a period prior to the derivation of relevant assessable income will be incurred in gaining or producing the assessable income in the following circumstances: · the interest is not incurred 'too soon', is not preliminary to the income earning activities and is not a prelude to those activities · the interest is not private or domestic · the period of interest outgoings prior to the derivation of relevant assessable income is not so long, taking into account the kind of income earning activities involved, that the necessary connection between outgoings and assessable income is lost · the interest is incurred with one end in view, the gaining or producing of assessable income, and · continuing efforts are undertaken in pursuit of that end. You have incurred interest and other holding costs for an investment property while you were undertaking repairs and improvements. The property was then available for rent as soon as the work had been completed. The period of time between the purchase of the investment property and the time to complete repairs and improvements is not considered to be so long that the necessary connection between the outgoing and the derivation of income was lost. Therefore, you are entitled to claim a deduction for interest and holding expenses incurred while the property was undergoing work and not rented.

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 acquired an investment property early 2011. | The property was not available for rent because you were undertaking repairs and improvements to it. | You incurred interest and holding costs including insurance and rates.