Letting fees incurred prior to property being available for rent

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?

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.

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.

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.]

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 | Part | Comment

15 August 2014 | Reasons for Decision | Corrected wrongly italicised text.

Reasons for Decision and Case References | Updated to include medium neutral citation.