We purchased an Investment Property at end of May this year, with the intention if a quick spruce up and rent out.
As it turned out though, it was further damaged during the Settlement Period for which we received some reimbursement for the damages.
Due to the time taken to fix the damage and and spruce the place up, the property was never rented during the financial year.
Are we able to claim anything for 2009/2010 year ? Interest, rates, borrowing costs, depreciation, etcAlso, due to finding/ causing more problems, the property remained unrented while it was being fixed until this month. How would this affect the above costs for next FY?
I’m aware that I can’t claim any of the expense for repairs, these are capital in nature.
see an accountant… however if your intention was to rent the place then yes you could be able to claim.
Hi Shwing
Your right on all counts..
you can claim interest, rates, borrowing costs & depreciation.
you cant claim the costs of repairs, however you can depreciate those costs which would be considered to be an improvement. Discerning between repairs and improvements can be tricky.. the ato website will be helpful there (believe it or not!)
Good luck!
This is not correct. You can't claim because you "intended" to rent it out.
You can only claim if it was actually AVAILABLE for rent. By your description it was NOT available for rent so you cannot claim.
An example of being available but not rented would be if it was listed as available for rent but was empty waiting for a tenant.I would agree with catalyst, you wouldn't be able to claim as it wasn't available for rent.
An accountant should be able to give you a diffinative answer.
sorry catalyst, I hate to contradict you, but he is definitely entitled to claim a deduction for interest, rates, land tax, insurance and water charges, despite the property not being available to rent during the financial year.
I dont expect you to take my word for it.. so I’ll refer you to Ormiston’s Case:
http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/cth/AATA/2005/978.html?stem=0&synonyms=0&query=ormistonIn short, the property is bought with the intention to rent, however extensive renovations are required to bring the property to a rentable state. The property is not available to rent, yet the judge finds that the above costs are deductible under s 8-1 of the Income Tax Assessment Act 1997
ormiston’s case transcript wrote:summary: INCOME TAX – property purchased for rental purposes – renovation over five years – property not available for rent – expenditure on interest, annual charges and repairs – whether allowable deductions – whether connection between expenditure and prospective income.ormiston’s case transcript wrote:4. Mr Ormiston said that he decided to purchase an investment property in early 1998 as a long term investment to provide rental income and increase in value.ormiston’s case transcript wrote:5. Mr Ormiston said that, shortly after taking possession of the investment property he arranged an inspection by two local real estate agents for their estimate of the potential rental. Both estimated a rental of between $220 and $260 per week with an increase of approximately $50 per week if some “cosmetic improvements” were made. He said that he decided to undertake some improvements prior to letting the investment property. As he had developed skills in renovating his own residence he sought to do most of the work himself. Initially, he expected the work to take up to twelve months but felt that the delay was warranted to obtain a higher rental and a better class of tenant.ormiston’s case transcript wrote:6.Mr Ormiston said that, soon after commencing work on the investment property, he decided that it would be prudent to restump the house. This delayed work on other areas of the investment property and resulted in more work and time than initially contemplated in repairing lath and plaster internal walls and external walls. Initially he worked on the investment property most weekends and some evenings. He accepted that he had not properly scheduled the amount of work and time required.ormiston’s case transcript wrote:8.As a result of legal action following the end of the de-facto relationship, Mr Ormiston said that it was necessary to sell the investment property to free the residence, now occupied by his former de-facto partner, from the security of the loan and to rationalise their joint affairs. The investment property was sold in August 2003. The work commenced by Mr Ormiston was still incomplete but he understood that the purchasers were able to complete the renovations and move into the house within five to six weeks of settlement. In the nearly five years of his ownership, the investment property had remained unoccupied.And the important bit….
ormiston’s case transcript wrote:13. On balance, I am prepared to accept the evidence of Mr Ormiston that his intention at the time of purchase of the investment property and thereafter until shortly before the sale, was to derive long term rental from the investment property. Consequently, I am prepared to accept, also, that his initial expectation was to have the investment property available for rental after modest renovations within a maximum of two years. The delay was caused by his inexperience, lack of proper planning and problems in his personal life.
14. As such, the interest on funds borrowed should be an allowable deduction under s 8-1 of the Income Tax Assessment Act 1997 (“the Act”) on the authority of Steele’s case. It follows, also, that other necessary recurring expenditure of rates, land tax, insurance and water charges were deductible under s 8-1 of the Act.Excellent response Mr501
Everyone has an opinion but in a court of law its called heresay.The safest course if your not sure is to obtain a written legal opinion as each case has its variations.Regards NR
Thanks for the well researched response Mr501.
I did much reading of the ATO site and relevant tax ruling.
I just wish I’d read your response prior to contacting the ATO to use in my argument.
TR 2004/4 covers the interest side of things ok. http://law.ato.gov.au/atolaw/view.htm?docid=TXR/TR20044/NAT/ATO/00001After speaking with someone at the ATO, I was advised,
1) declare the amount I received as a reimbursement for damages as “Rent Related Income”
2) Claim as a deduction – Interest on the loan only.3) No other deduction for Insurance etc could be claimed. ( I found this very odd)
The rest of the expenses was 100’s not 1000’s of $ like the interest, so I’m not going to complain.
I found 1) above to be odd also as generally you can offset the income received as reimbursement for damages, insurance claims etc, with the directly related expense even if the expense is incurred in the following year.I found the case very relevant as part of the reason for my delay in getting the work complete, as I’m doing most of it myself, is because of my inexperience in identifying all the problems, I’m obviously a crappy planner (my wifes words), and my personal circumstances ( still recovering from a broken leg and surgery due to a skiing accident).
Note to self: don’t by any new properties just before the end of the financial year if it’s not going to be rented.
Thanks again, for all responses and opinions.
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