With new legislation just being passed affecting vacant land, now is an important time to review how this will impact you and any future tax liability.
Prior to the above receiving Royal Assent on 28 October 2019, any taxpayer who held vacant land for earning income eg held for development, could claim the ownership costs as a tax deduction. From 1 July 2019 these deductions will now be limited, even if the land was purchased prior to 1 July.
The espoused purpose of this new legislation is to reduce the tax incentives for land banking and to reduce the instances where tax payers are improperly claiming expenses related to holding vacant land. Any deductions that you may now be denied under this new legislation, are added to the cost of the property and can reduce any capital gains tax implications when the property is sold.
To determine if the new legislation applies to your vacant land you need to consider if your land is considered ‘vacant’. Land is considered vacant if:
- At the time you paid the expense, the land did not contain a substantial or permanent structure
- The land did contain a substantial and permanent structure that is residential, however the structure is not lawfully able to be occupied, or rented out or made available for rent.
There are a few exceptions to the new legislation. Any land held by the following are not impacted by these changes:
- Companies, superannuation plans, managed investments trust
- Units trusts or partnerships
If the land is also used to carry on a business by yourself, an affiliate or an entity connected with you it is also not affected by these new rules.
So, in short, if you own vacant land and have been claiming the outgoing costs as a tax deduction each year and the land is not used as part of a business operation, you will no longer be able to claim the running costs as a tax deduction.
If you need assistance applying these new rules to your particular situation, please contact our office.