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Interest deductions as cost of gaining an off-the-plan investment apartment

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Hi Team,

 

A similar question was asked in following two forum (ie. 35188 and 26460) but the answer is still not very clear to me.

 

I have draw down from my Line of Credit Facility to make 10% deposit payment and stamp duty payment to acquare the off-the-plan investment apartment with intention to rent out the investment property upon settlment. 

 

Refer to TR 2000/2 and TR2004/4, can I claim for interest deduction incurred in LoC prior investment property settlement on the basis that LoC draw down is used exclusively for gaining an assessable income source (ie. an investment apartment).

 

s26-102 ITAA 1997 seems not applicable in this case as ATO representative has confirmed in another forum that entering a contract to purchase an off-the-plan property is not considered as purchasing vacant land (refer to forum 35188).

 

Please clarify.

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ATO Community Support

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Hi @sharontsai31,

 

Thank you for reaching out to us. What we look at is the use of borrowed funds. If you are using a Line of credit then the following applies. - A line of credit facility is a credit facility taken out with a financial institution under which a borrower may draw down funds up to an agreed credit limit. Line of credit facilities can be set up with one or more borrowers and one or more loan contracts.

Line of credit facilities are often used for private and investment purposes, or mixed purposes. The interest component relating to the investment portion of the loan is deductible. Where borrowed money applied to an investment is repaid, any further line of credit must be used for investment purposes to maintain interest deductions.

 

You can view Tax Ruling TR 2004/4 - Income tax: Deductions for interest incurred prior to the commencement of, or following the cessation of, relevant income earning activities. 

 

Hope this helps.

 

Regards,

Jodie2.

 

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Community Moderator

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Hi @sharontsai31 

 

We will need to check with our colleagues on this one.

 

Unless any of the tax professional Community members can provide an answer quicker?

Most helpful response

ATO Community Support

Replies 2

Hi @sharontsai31,

 

Thank you for reaching out to us. What we look at is the use of borrowed funds. If you are using a Line of credit then the following applies. - A line of credit facility is a credit facility taken out with a financial institution under which a borrower may draw down funds up to an agreed credit limit. Line of credit facilities can be set up with one or more borrowers and one or more loan contracts.

Line of credit facilities are often used for private and investment purposes, or mixed purposes. The interest component relating to the investment portion of the loan is deductible. Where borrowed money applied to an investment is repaid, any further line of credit must be used for investment purposes to maintain interest deductions.

 

You can view Tax Ruling TR 2004/4 - Income tax: Deductions for interest incurred prior to the commencement of, or following the cessation of, relevant income earning activities. 

 

Hope this helps.

 

Regards,

Jodie2.

 

I'm new

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Hi, if I buy off-the-plan, I understand from your reply that (a) interest is tax deductable? Is the other settlement costs (b) Conveancing? (c) stamp duty? (d) loan establishment fees (e) any other associated fees tax deductable? And what if I sell while still under construction does this change anything if my occupation/side hustle is flipping off-the-plan property before the Certificate of Occupancy is granted?

ATO Community Support

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Hi @TimTamGirl,

 

The laws have changed in regards to allowable deductions for vacant land, this includes properties under construction. If you cannot claim deductions during the construction period, you could look at them when selling/disposing of your property. The cost base information advises what expenses you can include when determining your capital gains tax. If you are doing this as a registered business the rules may differ.

 

Please use the links below for further information.

 

Links -

What is vacant land.

Deductions for vacant land.

Cost base.

 

All the best.