By Aden Bates
Home grown and casual property investors beware. The retrospective tax treatment of vacant land is likely to change soon.
Last month, the House of Representatives passed the Treasury Laws Amendment (2019 Tax Integrity and Other Measures No. 1) Bill 2019, which is quickly moving unopposed through the Senate.
Its looking likely that deductions for losses or outgoings connected to vacant land will be unavailable retrospectively from 1 July 2019 unless:
- the land is used or held available for use by the taxpayer in the course of carrying on a business in order to earn assessable income; or
- the land is used or held available for use in carrying on a business by an affiliate, spouse or child of the taxpayer or an entity that is connected with the taxpayer or of which the taxpayer is an affiliate; or
- the taxpayer is a company, corporate limited partnership, superannuation plan (but not an SMSF), managed investment trust, or a public unit trust. Alternatively, the taxpayer may be a unit trust or partnership but only where all members are any of the aforementioned entities. The idea here according to drafters, is that ‘institutional investors’ are left alone.
This means the following deductions, which were commonly claimed, are off limits:
- ongoing borrowing costs
- interest payments on land acquisition finance
- land tax, council rates and maintenance costs.
Land is presumed vacant unless there is a substantial and permanent building or other structure that is in use or available for use on the land. If there is a structure, it will need an independent purpose that is not incidental to the purpose of another structure or proposed structure on the land. A rough checklist for whether the structure qualifies might be:
- Significant in size or value;
- Its value or size is unique to the structure;
- It is fixed and enduring;
- The structure operates independently from other structures; and
- It was in existence at the time the loss or outgoing was incurred.
Even if all of these boxes are ticked, where the structure is residential in nature it has to be capable of being legally occupied (i.e. OC granted), otherwise the new restrictions on deductions will apply.
Remember, this is only affecting deductions. While cash flow and ongoing finance will likely be affected, there is some light in the end of the tunnel in that these expenses may still be factored into the land’s cost base for CGT purposes.
If these changes have you concerned, give Assured a call and we can help connect you with the right people, get your affairs structured in a way that works for you and get some clarity for you on whether land you hold will be affected.