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Practitioners have been warned of some ramifications of a new bill before Senate that proposes to deny deductions for the cost of holding vacant land even when it is being rented.
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Proposed measure targeting vacant land reveals ‘anomalous result’
17 September 2019
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Treasury Laws Amendment (2019 Tax Integrity and Other Measures No. 1) Bill 2019 is currently before the Senate and proposes to deny deductions for losses or outgoings incurred that relate to holding vacant land.
The proposed measure comes as some taxpayers have been claiming deductions for costs associated with holding vacant land when it is not genuinely held for the purpose of gaining or producing assessable income.
However, speaking to Accountants Daily, TaxBanter senior tax trainer Robyn Jacobson said the measure would deny deductions for the costs of holding vacant land even where the property is being rented.
“This means that the rent would still be assessable and taxable, but no deductions would be allowed against that income. This anomalous result flies in the face of the basic principle of section 8-1: that deductions are allowed for losses and outgoings incurred in gaining or producing assessable income,” Ms Jacobson said.
“What concerns me is the way they’ve defined vacant land is land where there is no substantial building or structure on the property.”
She added: “There are situations where the land is actually being rented as vacant land, but because there is no substantial building on it, that is the test as to whether you get a deduction, not whether it is actually being used for a taxable purpose.
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“If it is being rented, it is beyond doubt and not based on taxpayer assertions that it is used in a taxable manner.”
While there are exemptions, including if the land is used or held available for use by the entity in the course of carrying on a business, 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, Ms Jacobson said there are a number of situations where deductions will be denied.
These include property rented for agistment, where a farmer sells a primary production business but retains land and leases it to an unrelated farmer, and dirt lots in cities used as makeshift commercial car parks.
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