Announcements
If you haven't been able to get your JobKeeper enrolment in, no need to worry. You can call us until 5 June and we can help you get it submitted.

ATO Community

Re: Claiming mortgage interest on a rental property from 15 years ago

Highlighted

Initiate

Views 1096

Replies 9

I bought a block of land in 2002 with my own funds. In 2004 I built a house on in with a bank loan. The property was first rented out in 2005 and continuously until sold in 2018. I was non resident from 2003 to 2017. I have filed tax returns through a tax agent every year from 2005 when I had the first rental income. I never had any other income until 2017 apart from any interest from my savings bank account. The ATO have now informed me I need to do a tax return for 2004. They were able to tell me I had earned several hundred $ interest and tax had been withheld at source. They told me if I make a tax return I could claim the interest back. When I looked at the records I have for 2004 I see from the loan account I had for the building that I had paid several thousand $ in interest and charges. Can I now claim that as a tax loss and offset it against my current tax liabilities? Do I need to update all tax returns since 2004?

1 ACCEPTED SOLUTION

Accepted Solutions
Highlighted

Best answer

ATO Certified

Community Support

Replies 1

Hi @Tambo,

 

The information already supplied by @macfanboy is fundamentally correct however with all the back a forward it appears to have a confused the time line, therefore I will break it down below to ensure I have it correct.

 

You purchased a block of land in 2002 with your own money.
You then built a rental property on the land in 2004; you took out a loan to do this.
You have never lived in the property.
You rented the property from 2005 – 2018.
You were a non-resident from 2003 – 2017.
You have lodged income tax returns from 2005 – 2018
You have has declared rental income and interest on bank accounts.
You have received notification that a 2004 income tax return is required.

 

When you lodge the 2004 ITR, that return can contain all eligible claims and declaration of income appropriate to that year. Details on how to lodge prior year returns is on our website.

 

In relation to amendments to any later years you are limited to two years from the assessment date.
However you can request permission for an extension to object to the assessments prior to 2018 and 2017 and, if permission is granted, lodge an objection to the assessments from 2005 to 2017 with relevant information as in an amendment.

 

While the Community can provide general information, you can ask us to provide you with written advice on how we think tax law applies by contacting our early engagement team.


If you require additional information, phone us on 13 28 61 between 8am - 6pm, Monday to Friday to discuss further with a customer service representative.


I hope this helps, SueO

9 REPLIES 9
Highlighted

Taxicorn

Replies 8

Are you sure you were a "non-resident"?

 

Sometimes people who are not Australian Citizens believe incorrectly they are Non-Residents.

 

I have lived in Australia since 1978, never became an Australian Citizen but have always been a Resident for Tax.

 

Also, the ATO are letting you know that tax was witheld from interest that you earned NOT that you paid.

As tax has been withheld you need to lodge tax returns for all years it was withheld to claim back the tax withheld.

 

It is important to know if it was withheld due to not supply a Tax file Number OR it was withheld because you were a non-resident also.

 

Hopefully the Rental income/deductions were included in your tax returns each year?

Also, if you sold the house there will be Capital Gains Tax that will need to be calculated.

 

 

 

Highlighted

Initiate

Replies 7

I’m absolutely sure I wasn’t a resident in the 2004 tax year. My main concern is if it is too late to claim the interest and service charges I paid on the loan. I have been told I would have to lodge the 2004 return and update all subsequent ones but the ATO will only allow 3 returns to be updated and therefore I can’t claim the interest and charges on the loan against my current tax bill - only the tax deducted at source from the interest I earned. I want to know if that is true or is there a way to use that interest and charges as a “loss” - apologies if my terminology is wrong.
Highlighted

Taxicorn

Replies 6

First of you stated "They were able to tell me I had earned several hundred $ interest and tax had been withheld at source. ".

 

Which implies that they want you to lodge a Tax return to recover the tax that was withheld from you from Bank Interest from a savings account.

 

It has nothing to do with Interest that you paid on a loan, how would they know?

 

You can only do ammendments back 2 years from date of lodgement.

 

The interest that you paid for the rental property, if NOT claimed in 2004, may be able to be used to increase the cost base of the property as a 3rd element cost when you sell it. Therefore reducing Capital Gains.

 

Highlighted

Initiate

Replies 5

Yes, there was the interest withheld on the savings account and the interest which the bank charged on the loan. The property was sold last year so I can’t offset the interest against capital gains (unless I can amend last years tax return). That is what my query is about - do I need (or am I allowed) to amend every year since 2004. The annual interest on the loan was reported every year since 2004. Being unaware of the rules I probably didn’t do a tax return for 2004 as I had no income that year (rental started from 2005) and didn’t know I should declare the interest on the loan and then be able to offset it against future earnings. Maybe I just need to amend last years return (when the property was sold) and add in the interest on the loan from 2004?
Highlighted

Taxicorn

Replies 2

You should be able to add back to the "Cost Base" of the property the "cost of ownwership' not previously claimed.

So if you paid Interest in 2002, 2003 & 2004 that was not claimed it can be added back into the cost base as a "3rd Element".

 

So If Cost base of Property = $300,000 and the Interest payments were $1,000 & $1,500 & $1,5000 for 2002-2004 then the cost base would be $300,000 + $1,000 + $1,500 + $1,500 = $304,000.

This will reduce the capital gains tax.

 

Your accountant should have asked all the relevent questions when you sold the property.

These would include Buying costs, selling costs and any costs of ownership when not rented out, before and after.

Presuming it was ALWAYS meant to be a rental.

Cost of ownership include interest, rates etc.

 

Highlighted

Best answer

ATO Certified

Community Support

Replies 1

Hi @Tambo,

 

The information already supplied by @macfanboy is fundamentally correct however with all the back a forward it appears to have a confused the time line, therefore I will break it down below to ensure I have it correct.

 

You purchased a block of land in 2002 with your own money.
You then built a rental property on the land in 2004; you took out a loan to do this.
You have never lived in the property.
You rented the property from 2005 – 2018.
You were a non-resident from 2003 – 2017.
You have lodged income tax returns from 2005 – 2018
You have has declared rental income and interest on bank accounts.
You have received notification that a 2004 income tax return is required.

 

When you lodge the 2004 ITR, that return can contain all eligible claims and declaration of income appropriate to that year. Details on how to lodge prior year returns is on our website.

 

In relation to amendments to any later years you are limited to two years from the assessment date.
However you can request permission for an extension to object to the assessments prior to 2018 and 2017 and, if permission is granted, lodge an objection to the assessments from 2005 to 2017 with relevant information as in an amendment.

 

While the Community can provide general information, you can ask us to provide you with written advice on how we think tax law applies by contacting our early engagement team.


If you require additional information, phone us on 13 28 61 between 8am - 6pm, Monday to Friday to discuss further with a customer service representative.


I hope this helps, SueO

Highlighted

Initiate

Replies 0

Thank you SueO , i’m off to Europe soon and will check through all my old paper records to make sure I have all the relevant details before I lodge the return for 2004 and amendments for the other years.
Highlighted

Community Support

Replies 1

Hi @Tambo,

 

Welcome to our Community, and thank you for your question.

 

We are seeking some additional information from a specialist area and will respond asap.

 

Thanks, SueO

Highlighted

Initiate

Replies 0

Thanks!