Treasury has today released the much awaited legislation that will deny certain taxpayers tax deductions on vacant land held for investment purposes. Individuals, SMSF's and Discretionary Trusts will need show that they or their related parties are using the land to operate a business, or deductions on the land will be denied. Landholders will also need to apportion where the business only utilises a portion of the land and the balance is vacant.
Taxpayers will need to watch they are not putting their access to future CGT discount at risk by stating they are in the business of developing, simply to claim deductions along the way. Submissions are due on the draft legislation by the end of October.
The Government is improving the integrity of the tax system by denying certain deductions for expenses associated with holding vacant land. Draft legislation released today for public consultation limits deductions for expenses associated with holding vacant land from 1 July 2019. This measure was announced in the 2018-19 Budget, and addresses concerns that deductions are being improperly claimed for holding vacant land where the land is not genuinely held for the purpose of earning assessable income. The measure does not apply to expenses associated with holding vacant land that is used by the owner or a related entity to carry on a business. For example, the measure will not apply to a business of primary production or to a property developer that is carrying on a business and is holding land for the purpose of that business.