New legislation has been introduced which will mean holding costs can no longer be claimed by a taxpayer on vacant land unless certain strict criteria are satisfied
The Income Tax Assessment Act 1997 (ITAA 1997) currently enables tax payers to claim holding costs for vacant land if the vacant land is held for the purpose of producing assessable income or carrying on a business. Such costs have included council rates, land taxes and interest on borrowings used to acquire the land. However, this has long been a cause of debate as it can be difficult to determine whether the vacant land is, in fact, being held for income producing purposes.
Accordingly, amendments have now been introduced to alter the ITAA 1997 which will result in certain tax payers not being able to claim these deductions from 1 July 2019, regardless of when the vacant land was originally purchased.
Critically, if the primary producer landowner is an individual, SMSF, partnership or trust, an exception will apply and they can continue to claim the deductions where they either:
- use the vacant land in carrying on a business; or
- rent the vacant land to any other related or unrelated entity, who can then use that land for any purpose. Rent in this instance must be at arm’s length.
It is useful to note that vacant land in this situation cannot contain a residential premises or be land where residential premises are to be constructed. It also cannot contain substantial and permanent structures, which may include items like sheep yards or fixed silos. For a structure to be permanent, it must be fixed and enduring.
It is not yet apparent but the legislation at this stage does not appear to limit the type of land to which the above exception applies ie whether it only applies to primary production land or other types of land. It will be interesting to see what eventuates in this regard.