Are you counting on tax deductions for costs related to holding vacant land?
Proposed amendments to the tax law currently before Parliament mean that if you:
hold vacant land that you currently earn assessable income from by renting it out to an unrelated party (e.g. under a rental or agistment arrangement); or
are contemplating purchasing vacant land with a view to:
renting it out either immediately or in the future; or
constructing a building on the land to be rented out on completion
then, contrary to your likely expectations, from 1 July 2019 you may not be allowed a tax deduction for holding costs (such as council rates, land tax, maintenance costs, and interest or any other ongoing costs of borrowing to acquire the land) incurred by you in relation to that land except in limited circumstances.
Holders of vacant land potentially caught by the new rules include individuals, trustees of private trusts and trustees of SMSFs.
Land will be 'vacant land' if there is no substantial and permanent structure that is in use or available for use on the land that has a purpose that is independent of, and not incidental to, the purpose of any other structure or proposed structure. Residential premises that have been constructed, or substantially renovated, by a landholder while it holds the land will not qualify as a structure for these purposes until those residential premises are lawfully able to be occupied and are either leased, hired or licensed or available for lease, hire or licence.
An exception will apply to the extent that the land is in use, or available for use, in carrying on a business for the purpose of gaining or producing assessable income for the holder. An exception will also apply to the extent that the land is used in the business of certain related persons and entities.
Losses or outgoings that are not deductible in an income year as a result of the new rules may be able to be included in the cost base of the land for CGT purposes.
If you think you may be affected by these measures please contact us or your tax agent.