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ATO Interpretative Decision

ATO ID 2002/1096 (Withdrawn)

Income Tax
Letting fees incurred prior to property being available for rent

Attention This ATO ID is withdrawn. Guidance on the basis of the decision in this ATO ID can be found in Taxation Ruling TR 2004/4 Income tax: deductions for interest incurred prior to the commencement of, or following the cessation of, relevant income earning activities. Guidance relating to the issue addressed in this ATO ID can be found in the Rental Property Guide (NAT 1729) published to ato.gov.au (QC 23626).
Attention This document has changed over time. View its history.
FOI status: may be released
Status of this decision: Decision withdrawn 24 March 2017.

CautionCAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.


Issue

Is the taxpayer entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for property agent fees incurred prior to a property being available for rent?

Decision

Yes. The taxpayer is entitled to a deduction under section 8-1 of the ITAA 1997 for property agent fees incurred prior to a property being available for rent.

Facts

The taxpayer is constructing an investment property.

The taxpayer engaged the services of a property agent prior to the property being available for rent. The agent was to select a suitable tenant to occupy the property once it was completed.

The taxpayer incurred a fee for this service.

Reasons for Decision

Section 8-1 of the 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.

It is not necessary, however, that the expenditure in question produces assessable income in the same year in which the expenditure is incurred.

Taxation Ruling TR 2004/4 in considering the decision of the High Court in Steele v. Deputy Commissioner of Taxation [1999] HCA 7; (1999) 197 CLR 459; 99 ATC 4242; (1999) 41 ATR 139 ( Steele's Case ) concludes that interest incurred in a period prior to the derivation of relevant assessable income will be incurred in gaining or producing the assessable income in the following circumstances:

·
 The interest is not incurred 'too soon', is not preliminary to the income earning activities and is not a prelude to those activities
·
 The interest is not private or domestic
·
 The period of interest outgoings prior to the derivation of relevant assessable income is not so long, taking into account the kind of income earning activities involved, that the necessary connection between outgoings and assessable income is lost
·
 The interest is incurred with one end in view, the gaining or producing of assessable income; and
·
 Continuing efforts are undertaken in pursuit of that end.

While Steele's Case deals with the issue of interest, the principles can be applied to other types of expenditure including local council, water and sewage rates, land taxes and emergency services levy.

The fees the taxpayer has incurred were paid in order to obtain a suitable tenant for the investment property once the property was constructed and available for rent. It was always the taxpayer's intention to derive assessable rental income once the property had been completed.

The expenses are incurred with regard to property to be used solely for income producing purposes. The expenses are not considered to have been incurred at a point 'too soon' before the commencement of the income producing activity. There is no private or domestic purpose for holding the property, the taxpayer's intention was always to build an income producing property.

In these circumstances the taxpayer is entitled to a deduction under section 8-1 of the ITAA 1997 for property agent fees incurred in obtaining a tenant for the investment property.

[HISTORY: This ATOID was amended on 7 May 2007 by replacing the references to Taxation Ruling TR 2000/17 with references to Taxation Ruling TR 2004/4.]

Amendment History

Date Part Comment
15 August 2014 Reasons for Decision Corrected wrongly italicised text.
  Reasons for Decision and Case References Updated to include medium neutral citation.

Date of decision: 20 November 2002

Year of income:Year ended 30 June 2002

Legislative references:
Income Tax Assessment Act 1997
   section 8-1

Case references:
Steele v. Deputy Commissioner of Taxation
   [1999] HCA 7
   (1999) 197 CLR 459
   99 ATC 4242
   (1999) 41 ATR 139

Related Public Rulings (including Determinations)
Taxation Ruling TR 2004/4

Related ATO Interpretative Decisions
ATO ID 2001/479

Keywords
Investment income
Landlord expenses
Rental expenses
Landlord & tenant
Newly constructed buildings and structures

Siebel/TDMS reference number: CW3154430; 1-5PJ3DVH; 1-AZNL362

Business line: Small Business/Individual Taxpayers

Date of publication: 30 November 2002

ISSN: 1445-2782

ATO ID 2002/1096 (Withdrawn) history   Top  
   Date   Version 
   20 November 2002   Original statement   
   15 August 2014   Original statement   
 You are here ®  24 March 2017   Withdrawn   


 


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