Private ruling: Deduction - Lease Expenses
Date of advice: 21 July 2017
Published: November 2017
Ruling period: 1 July 2016 to 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Questions and Answers | Are you entitled to a deduction under section 25-20 of the Income Tax Assessment Act 1997 (ITAA 1997) for the stamp duty incurred in the assignment of a lease where the property is used for income producing purposes? | Yes

Relevant facts and circumstances: The property is a residential property The 'Lessor' of the property is Entity A. The 'Assignors' is Entity B. You are the 'Assignees'. The original leases between the 'Lessor' and 'Assignors' has a terminating date of 20XX. A 'Deed of Consent to Assignment of Leases' document was executed in 201X between the 'Lessor', 'Assignors' and 'Assignees'. Stamp duty of $X was paid by the Assignees in relation to the assignment of the lease. One of the requirements of the assignment was that the Assignors were allowed to live in the property for a period of two years. A 'Residential Tenancy Agreement' was entered into between the 'Assignees' (Landlords) and 'Assignors' (Tenants) for the two year period. This agreement is at market rates. The Assignees are undecided on what to do at the end of the Tenancy Agreement; they will either extend the tenancy or move into the property themselves. Apart from the assignment of the lease there is no other relationship between the parties.

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

Reasons for decision: Summary: Subsection 25-20(1) of the ITAA 1997 provides that a deduction is allowable for the cost of preparing, registering or stamping a lease of property or an assignment or surrender of a lease of property, where the property has been or will be used solely for the purposes of producing assessable income. Further, under subsection 25-20(2) of the ITAA 1997, a portion of the lease expenditure is an allowable deduction if the leasehold property is or was used partly for income producing purposes in the income year. Although the term 'lease' is not defined in the ITAA 1997, the general law requirement is that a lease must be granted for a definite period. As the property is used for income producing purposes you are entitled to a deduction for the stamp duty incurred with regard to the assignment of the lease.