Limiting tax deductions for holding vacant land

On the 28 October 2019, The Treasury Laws Amendment (2019 Tax Integrity and Other Measures No.1) Bill 2019 received royal assent. The new tax law creates limitations for deductions related to the expenses of holding vacant land from 1 July 2019. This is likely to affect those who acquire land for investment purposes and begin developing for rental investment purposes.

The amendments will only apply to holdings on ‘vacant land', meaning that it will not apply to any land that has a substantial and permanent structure in use or ready for use, or is a residential premise that is lawfully able to be occupied. Land is considered vacant if both of these are not true.

The changes will not apply to vacant land held by ‘excluded entities,' which are:

• Corporate tax entities.
• Managed investment trusts.
• Public unit trusts.
• Superannuation plans other than self-managed superannuation funds (SMSFs).
• Unit trusts or partnerships where all members are of the excluded entities listed above.

The law will also be inapplicable if:

• Structures affected by natural disasters or similarly exceptional situation.
• The land is in use or available for use in carrying on a business by the taxpayer or their affiliates, connected entities, spouse or child under 18.

The land is in use or available for use for business purposes under an arm's length rental arrangement.