Key Takeaways
- In 2018, changes to the Income Tax Assessment Act created confusion around whether investors could deduct interest on land before a property is rented
- Many accountants believed the change prevented these deductions, leading investors to miss significant tax savings
- Ethical IQ reviewed the legislation and determined the rule did not apply to most property investors building new homes
- After preparing an appeal paper, Ethical IQ won an administrative review, allowing clients to continue claiming these deductions
- Property investors who built recently may be able to amend past returns and recover missed tax refunds
Hello there. My name is Rick Leighton from Ethical IQ.
Today, let’s talk about an important update from 2018 regarding property tax deductions that is especially valuable for property investors building brand new homes.
In 2018, the Australian government made changes to the Income Tax Assessment Act, specifically amending Section 26-102.
This amendment affected the ability of property investors to immediately deduct interest on land before a property was rented out.
When the change was introduced, it caused quite a stir among accountants and tax professionals. Many believed the rule applied broadly to all property investors and prevented deductions being claimed before a property began generating rental income.
As a result, many advisers told their clients not to claim these deductions, which meant a large number of investors missed out on significant potential tax savings.
At Ethical IQ Advisory, we decided to take a much closer look at the legislation to understand its true intent.
After reviewing the wording of the law and analysing a draft ruling from the Commissioner of Taxation, it became clear to us that the change was not intended to affect most property investors or construction interest.
Based on this understanding, we prepared an appeal paper and pursued an administrative review on this point of tax law.
We successfully won that review.
Because of this outcome, all Ethical IQ Advisory clients were able to continue claiming full tax deductions on land holding costs, saving many of them thousands of dollars.
What’s surprising is that even today, more than 90% of accountants are still not informing their clients about this ruling, meaning many investors continue to miss out on substantial tax refunds.
This strategy can deliver a lump sum tax refund and improve cash flow while your new investment property is still under construction.
Importantly, the ATO’s decision from the review is now a binding tax ruling, which means the Commissioner of Taxation must follow it in future cases.
Property investors who understand and apply this ruling can gain a significant advantage.
To find out more, talk to us at Ethical IQ Advisory — Australia’s number one tax advisory firm for property investors.
If you built an investment property in the last few years and didn’t claim the interest, we may be able to help you recover those deductions and obtain a tax refund, even if your tax returns have already been lodged.
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