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Limiting of tax deductions for vacant land

Posted By Cameron Allen  

New tax rules operate from 1 July 2019 to prevent certain taxpayers from claiming tax deductions in relation to vacant land, where the law is not in used, or held available for use, in carrying on a business. These expenses may include, for example, loan interest, council rates and other recurring holding costs. The amendments are not only retrospective but go beyond purely vacant land.


Previously, holding costs for vacant land could be claimed if they were incurred in gaining or producing assessable income (which would be the case if the land was intended to be developed for future income-producing purposes). The Government argued that this new legislation would address compliance and administrative difficulties caused by needing to establish the intention of the taxpayer in holding vacant land and therefore improve the integrity of the taxation rules.


The new law, which takes effect from 1 July 2019, regardless whether the vacant land was held before this date, would not limit deduction for such expenses to the extent the land was used or held available for use in the course of carrying a business, either by the taxpayer or its related entities.


The new rules will apply to individuals, trusts (which are not widely held) and to self-managed super funds (SMSF’s). They will not apply to companies, managed investment trusts, public unit trusts or super funds other than SMSFs.


Therefore, non-excluded entities, such as individuals, closely held trusts and SMSFs, will need to prove that the land is held for the purposes of carrying on a business such as property development or primary production. As this is a question of fact, taxpayers must be prepared to substantiate their position in the case of being challenged by the tax office. Coupled with the complexities of what constitutes vacant land under this new legislation, it is imperative for taxpayer to fully grasp the implications of these new amendments.


A&A tax consultants can help you manage the impact of the new law to your situation relating to your property holdings or investments.


Please contact us at 03 99394488.