At what point can I start claiming interest on an Investment Property?
It is common knowledge that certain deductions are available from the date a property is listed with an agent and available for rent. What many are unaware is that interest may also be deductible during a period:
- A rental property is under construction;
- Renovations are undertaken immediately after purchase in preparation for rental; or
- A rental property is temporarily unavailable for rent due to renovations and/or repairs.
Providing the taxpayer’s intention is only to use or continue to use the property for income producing purposes, the ATO advises that interest expenses incurred during a period before the derivation of assessable income will generally be deductible if the following requirements are satisfied:
- The interest is not incurred too soon to the income earning activities; (eg prior to the land being acquired)
- The property is not to be used for private or domestic purposes;
- The period of the interest expense before the derivation of relevant assessable income is not so long that the necessary connection between outgoings and assessable income is lost;
- The interest is incurred solely with the purpose of producing assessable income); and
- Continuing efforts are undertaken in pursuit of that end.
The main thing to be aware of is that the onus is on the taxpayer to establish that their intention for the property was exclusively for income producing purposes. Therefore, it is important to retain documentation proving this intention, such as:
- Real Estate Agents - Documentation of quotes and conversations with agents relating to the intention to rent out the property including expected income and timing.
- Financial Institutions – Evidence that finance has been obtained or applied for the property on the basis that it was to be used as a rental property.
- Trades - Documentation from tradespeople relating to the intention to rent out the property, this may be in the form of comments included on quotes and invoices.
Note that some factors may impact deductibility (ie. if a project becomes dormant or there are unexplainable delays).
By Troy Green
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