Hi All,
We have brought a land in 2011 for investment purpose to built rental property.
Therefore, i was claiming the expences in tax such as council rates, interest etc.
but now we are thinking to built house for our self instade of investment property.
we are first home buyers and currently renting a place. So can we built house for our self now and still can claim first home owner grant?
Please advise me on this..
Thanks for reading it..
Cheers
bjasani
You should hope you don't get audited by the ATO as you aren't earning revenue from your land, therefore you can't claim any expenses.
Yes, would be in a lot of trouble
I am no tax accountant, but based on my experience:
If you buy an investment asset and it generates NO income, you cannot claim any costs for the financial year they were incurred. Having said this, the costs can be deducted from any capital gains for the financial year you sold/sell it (i.e. your cost base).
If the investment asset is to be changed to a non-investment asset (i.e. principle place of residence). Then you will need to demonstrate/declare the market value of the asset at that point in time. If there is capital gains, you can offset the costs and the balance will be taxed under capital gains tax. Once done, you can then use the asset as a non-investment asset. Once this is done, and provided your 1st home buyer eligibility can be satisfied, you can get the grant.
Working example:
2012 - buy land at $200k + $5k stamp duty with $3k/year costs
2014 - market value of land is $250k. So your capital gains is $250k - ($200k + $5k + $3k + $3k) = $39k taxable under Capital Gains Tax.
The above is simplified and based on assumptions. Best you speak to your tax accountant.
To 3 of the posters above talking about interest deduction for the land that isn't currently generating an income, Steele v FCT may be of interest to you.
If he decides to build his personal residence on the land then even under this ruling the interest expenses would not be deductible.
Thanks All for kind reply.
@suti, I have read on ATO website that if your intention is to build rental property then you can claim all the expenses but not sure what if your circumstances change and you decide to live in newly built property then you can not claim any expenses?
@siu_loong_bao,you are right, I think, if i was to sell property now or even later i have to pay taxes then.
@ohsnap, Yup you are right it did help me understand and Steele wins the case and claims around $70000 for 4 year interest and other expenses.
I am still bit unsure, can any accountant please help on this topic
Thanks Again
bjasani
might i suggest you seek professional advice - ie an accountant .. and possibly pay for it if need be.
My understanding .. .and probably incorrect, so please verify it yourself :
1/ It relates to your intention at time of purchase. If your intention is for investment purposes i believe your tax is deductible.
2/ I would not think capital gains tax is applicable when you change your intention. a capital gaines "event" has not yet occured. eg. you havent sold your property. Check when and what constitutes an "event" to see if your scenario falls under one of them
3/ If you live in the property for a period of time, perhaps you can be except from CGT under the 6 year rule.
note that .. i live in NSW. So i dont know if all these also apply to VIC - sorry …
ask (& pay) for an accountant . good luck.
I'm not an accountant, but I'm thinking your chances of being able to claim first home owners grant are around nil.
I think you can but to be sure call the State Revenue Office (in Victoria)