Private ruling: Rental property deductions
Published: February 2014
Ruling period: Year ended 30 June 2010 | Year ended 30 June 2011 | Year ended 30 June 2012 | Year ended 30 June 2013
Date scheme commenced: 1 July 2009

Ruling: Q1: Are you entitled to a deduction for land tax? | A1: Yes

Relevant facts and circumstances: You were the owner and lived in the property. You began renting the property after a period of time. You provided information to the relevant authority regarding your property. You were assessed for land tax amounts that were due and paid during the relevant financial year. Your tenants vacated the property after a period of time. An additional land tax assessment was issued after the tenants vacated the property. You paid this assessment in the subsequent financial year. The property was sold.

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 (ITAA 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. Land tax associated with a property that is used to produce assessable income is an allowable deduction. Taxation Ruling TR 97/7 summarises various propositions of the Courts about when a loss or outgoing is 'incurred' for the purposes of section 8-1 of the ITAA 1997. The ruling states (at paragraph 5), 'As a broad guide, you incur an outgoing at the time you owe a present money debt that you cannot escape.' Generally land tax is assessed each calendar year based on land holdings as at midnight on 31 December in the year preceding the assessment year. At this time a taxpayer is 'definitively committed' or 'completely subjected' to the debt, even if they are unaware of it (ATO Interpretive Decision ATO ID 2010/192). At the relevant time during the 20XX, 20YY and 20ZZ financial years the property was held for income producing purposes when the land tax expense was incurred. Therefore, you are entitled to a deduction for the full land tax paid for the property in the 20XX, 20YY and 20ZZ income years. ATO Interpretive Decision ATO ID 2001/82 considers the need to apportion a deduction for land tax if a property ceases to be income producing part way through the year. ATO ID 2001/82 provides the following: A land owner becomes liable to land tax for the period commencing either 1 January or 1 July (depending on the particular state legislation) if, at a certain point in time (either 31 December or 30 June), he or she satisfies the conditions for its imposition, for example, if the property is being used for income producing purposes. Where a land owner is under an obligation at the start of the land tax financial year to pay land tax because the property is used for income-producing purposes, there will be a sufficient nexus between the outgoing and the production of assessable income for the outgoing to be deductible. If later in the year, after incurring the expense, the property is sold or it becomes the land owner's residence, there is no requirement to apportion the claim for a deduction for the expense incurred. You have incurred expenses in relation to land tax on a property that was only available for rent for part of the relevant income year. When you incurred the expense, your property was held for income producing purposes. Therefore, you are entitled to a deduction for the full land tax paid for the property in the relevant income year.