Are subdivision costs tax deductable?

Question from Rien updated on 11th December 2009:

My wife and I, in partnership, have built and live in a second house on our property borrowing against the existing property which we have rented out for more than a year now. We have been advised to subdivide the first property off so we have a separate title and can form a LACQ. We have just completed this. Are the subdivision costs tax deductable for the partnership (not LACQ yet)which is liable for tax on the rental received so far?

Our expert Mark Withers responded:

No, the subdivision costs are not deductible, they are capital in nature and have no nexus with the income earning activity of rental. For the subdivision costs to be deductible the partnership would need to be deriving assessable income from the land sale.

Mark Withers and his team at Withers Tsang & Co specialise in advising on property related transactions, valuation and restructure services and tax planning.



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