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Leasehold property and the deductibiIity of stamp duty

McLaren, J and Passant, J 2017 , 'Leasehold property and the deductibiIity of stamp duty' , Australian Tax Law Bulletin, vol. 4, no. 3 , pp. 44-46 .

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Abstract

The purpose of this paper is to explain the operationof s 25-20 of the Income Tax Assessment Act 1997(Cth) (ITAA97) and the legal basis for the deductibilityof stamp duty on leases if the property is used for thepurposes of earning assessable income and to raiseawareness of the existence of this important section ofthe ITAA97. The reason why there is an important needto produce this paper is that over the past few monthssenior tax agents and accountants working in Victoriaand the NT have been asked this question: is stamp dutya deductible expense if the property is being used forincome producing purposes in the ACT? The answerhas always been a resounding "no". The second questionthat has been asked is if the investment property isleasehold title and not freehold title, would that makeany difference to your answer? The response has alsobeen a resounding "no". The explanation has alwaysbeen that stamp duty is a capital expense and thereforenot deductible, but it becomes part of the cost base forcapital gains tax purposes when the investment propertyis sold. The logical approach that is taken is that stampduty is a one-off expense and is regarded as being of acapital nature and caught by the first negative limb ofs 8-1 of the ITAA97. The accountant or tax agent knowsthat it will form part of the second element of the costbase for capital gains tax purposes pursuant to s 110-25of the ITAA97. This view is reinforced bys 110-35(4)where stamp duty is listed specifically as an "incidentalcost", namely the second element for cost base purposes.This will always be the correct approach when theinterest in the real property that is being used for incomeproducing purposes is freehold and not leasehold.

Item Type: Article
Authors/Creators:McLaren, J and Passant, J
Keywords: tax law, leasehold
Journal or Publication Title: Australian Tax Law Bulletin
Publisher: LexisNexis
ISSN: 2203-9481
Copyright Information:

Copyright 2017 Australian Tax Law Bulletin

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