Holding Vacant Land – What Expenses Can You Claim?

Hello Chasers,

If you hold vacant land then there are certain circumstances where you may be able to claim tax deductions for the holding costs, such as rates, interest etc.

Tax Ruling TR2023/3 released in September last year make sit clear when you can deduct expenses related to holding vacant land.

Confused by all the legal jargon? 

Worry not! 

Here’s a simplified breakdown for you:

The basic rule: You can’t deduct expenses (like interest or taxes) for vacant land unless it’s being used or is available for use in your business.

Some exceptions though:

  • You’re a company, super fund (except SMSFs), investment trust, or certain partnerships.
  • The land was hit by a natural disaster.
  • You’re a farmer using the land for agriculture.
  • You lease the land at arm’s length to a business.

Key points to remember:

  1. Land with no permanent structures (think buildings) is considered vacant.
  2. Newly built houses or apartments count as structures only if they’re legally habitable and rented or available for rent.
  3. Short periods of unavailability for minor repairs are okay.
  4. Expenses like council rates and land tax are covered by the rule.
  5. Construction costs aren’t covered by the rule.
  6. To deduct expenses, the land must be used for your business (think developing it).

The ATO has a handy compliance approach for unrelated lessees. If you make a reasonable assessment, they’re running a business based on factors like their ABN and lease terms, the ATO won’t hassle you (unless your assessment is way off).

Still confused? 

No worries! 

Remember, following the rules ensures you don’t miss out on valuable deductions, and keeps the taxman happy!

This is just a simplified overview, so as always for any matters relating to tax contact our professional team for specific advice relating to your unique individual circumstances.

Have a great day!

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