As you may have seen in the media, the Federal and State governments have been stimulating the building industry as a result of the downturn in the economy from COVID.

These are temporary incentives to encourage residential and investors into the market and applicants have a limited amount of time to be eligible.   The increased demand for new houses could lead to longer wait times for houses to be built due to shortage of labour which could lead to land being vacant for longer than anticipated.  If you are an investor in this situation, it is important to note that from 1 July 2019 deductions available for vacant land have changed.

What is vacant land?

Vacant land is broadly defined as “land with no substantial and permanent structure on it that is in use or available for use”.

Prior to 1 July 2019 (Old Rules)

Prior 1 July 2019 the ATO were accommodating in recognising the time and common delays that were associated with building a new property.  If the owner was taking active and genuine steps in building a property that would be used to produce income once compete (seeking finance, engaging a builder, architect, real estate agent and council development plans) the ATO allowed a tax deduction for the associated holding costs up front. Holding costs include expenses such as:

  • Loan interest
  • Council rates
  • Land tax
  • Insurance

It is important to note that these expenses are still deductible if you incurred them before 1 July 2019.

From 1 July 2019 (Current Rules)

From 1 July 2019 the holding costs associated with vacant land are no longer deductible. While this is unfortunate, not all is lost. Instead these costs will be added to the cost base of the property and may reduce any capital gains tax payable when you sell the property.

So if you are hoping to take advantage of record low interest rates and build a new investment property it is important to document all of your expenses as you will need these when you come to sell.

As always it is best if you seek advice from an accountant prior to entering into any contract as everyone’s circumstances are different.

Other related blogs

Holding costs and the impact on Capital Gains Tax
Four year construction rule when you buy vacant land or renovate

Accountant: Louise Leafe