20 Sep ATO changes for all purchasers of House and Land Packages
From 1 July 2019, expenses associated with holding land and construction on that land were no longer outright deductible due to an Draft Tax Ruling issued by the Australian Tax Office.
Recently the Tax Office finalised their Ruling and clarified their position. As a result:-
Owners can include interest and borrowing costs for their construction loans if they are building an investment property (not a property to sell).
Holding costs for the land such as interest and borrowing costs, as well as council rates, land tax, etc will continue to be non-deductible but can be capitalised as part of the cost base for CGT purposes.
What does this mean?
If you bought an investment property and paid interest between 1/7/19 and 30/6/24 on a construction loan – you may be able to apply for an amendment to your tax return(s) to include additional deductions for any interest/borrowing costs that have not already been claimed.
What years can be amended?
Tax returns can be amended based on standard ATO amendment time limits – generally 2 years from the day after your original notice of assessment is sent to you (eg if the date of your 2022 notice of assessment issued is 31 October 2022, then you have until 31 October 2024 to request an amendment to your 2022 tax return).
https://www.ato.gov.au/individuals-and-families/your-tax-return/amend-your-tax-return
If the above applied to you – what to do now:-
- Contact the Tax Agent who lodged your tax returns to request they amend your tax return(s)
- They may charge a fee so in order to minimise the cost involve have ready the necessary paperwork required being:-
- Loan documents relating to the property
- All loan statements relating to the property from date of purchase of the land until construction was complete
Holding costs that you can’t claim
Any costs that you incur on an investment property from land purchase to the property being rented and haven’t been claimed in your tax returns will be able to be included in the Cost base to reduce your capital gains tax when you sell the property. Therefore, it is vitally important that you keep records of all expenses during that time. We would suggest keeping an excel spreadsheet to summarise these expenses as well as the source documents being – loan documents, loan statements, bank statements, receipts, etc. remembering that you will need to keep until after the property is sold. To confirm the type of expenses I am referring to:-
Holding costs of land & any construction costs that you don’t claim as outright deductions:-
- Upfront loan costs;
- Interest paid
- Bank charges
- Rates
- Land Tax
- Building inspection costs
Want to know more information?
Contact us at https://spect.com.au/contact-us/ if you have any questions.
