Deducting interest expenses and council rates for vacant land

Are you?
– A taxpayer who holds vacant land?

At a glance:
– Interest expenses and council rates incurred for holding vacant land may be tax deductible.

You should:
– Document your intentions for holding vacant land.
– Contact us if you require any clarification or advice.

Generally, land that is purchased is a capital gains tax (CGT) asset or capital asset that is subject to CGT rules. The exception is when land is held as trading stock in the ordinary course of a business.

Land may be treated as trading stock for income tax purposes if:

• It is held for resale; and
• A business activity that involves dealing with land has begun.

Classifying vacant land as a CGT asset or trading stock can affect a taxpayer’s ability to claim interest expenses and council rates as an outright deduction.

Land that is treated as a CGT asset generally prevents interest expenses and council rates from being claimed as a deduction because the land does not generate income. However, these costs will form part of the cost base of the land reducing any future capital gain.

Land held on capital account does not necessarily prevent a taxpayer from claiming interest expenses and council rates as a deduction. Land purchased with the intention of building a rental dwelling on it may allow for interest expenses and council rates to be deductible.

Interest expenses and council rates may be deductible if the land is held as trading stock (on revenue account).

For more information on the tax treatment of vacant land, click here.

Remember:
– There may be stamp duty or GST implications when buying and/or selling land.