Claiming on subdivision of family home

Our Experts Answer:

You will be able to claim expenses associated with deriving the rental income from the point where the dwelling was made available for rent. The $7000 refurbishment costs are probably non deductible personal costs though as they were associated with the period where you lived in the house. None of the interest on money borrowed to build the new dwelling for yourselves will be deductible against the rental income from the original house. This may be why your advisor has suggested a restructure.

Section CB12 potentially taxes gains made where property has been developed and divided within 10 years of acquisition. There are exemptions for your own home and exemptions where you intend living in the new home and it would seem you owned the property 10 years before thiis development and subdivision but I would recommend a review of the facts before you confirm a profit by selling the dwelling to a LAQC. Remember also that the QC rules are being completely overhauled and the final detail associated with this is not yet available. 

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