Navigating Post-Cessation Interest Deductions
Understanding post-cessation interest deductions is crucial, especially regarding property sales. Here's a breakdown:
1. Post-Cessation Interest Scenario: After selling an income-producing property, the sale proceeds might not cover the loan fully, leading to ongoing interest charges. Generally, such post-cessation interest is deductible under S.8-1 (refer to FCT v Brown [1999] FCA 721 and TR 2004/4).
2. S.26-102(1)(b)(ii) Provision: This provision ensures uninterrupted deduction of otherwise deductible post-cessation interest, given an eligible structure was "in use or available for use" just before ceasing to hold the land. It means holding costs won't be denied if the land wasn't 'vacant land' immediately before ceasing ownership.
3. Vacancy and Eligibility: Even if a rental property was vacant and not marketed for rent before sale, it's considered "in use or available for use" for S.26-102(1)(b)(ii) purposes. Thus, ongoing post-cessation interest remains deductible, provided TR 2004/4 requirements are met.
4. Property Renovation Consideration: If a property was substantially renovated while the taxpayer held the land, S.26-102(4) may deem the land as 'vacant land' if sold without active rental marketing. This could potentially deny post-cessation interest deductions. However, for pre-existing residential rental properties, S.26-102(4) wouldn't apply.
Navigating these rules requires careful consideration of property status and activities before sale.
For tailored advice on post-cessation interest deductions and property transactions, contact Tax Ideas Accountants & Advisers at +61 2 8318 1545 or schedule an appointment via our live calendar.
