The government first announced that it would be making changes to the tax deductions for vacant land in the 2018–19 budget. At the time, it was concerned that deductions were being improperly claimed for holding vacant land where the land is not genuinely held for the purpose of earning assessable income.
There is now draft legislation out to restrict the allowable deductions for expenses associated with holding vacant land.
Under current law, a taxpayer can claim deductions for losses or outgoings incurred to the extent they relate to holding vacant land if the losses or outgoings were incurred in gaining or producing their assessable income or they relate to the taxpayer carrying on a business in order to derive assessable income.
Under the new amendments, set to apply from 1 July 2019, a taxpayer cannot claim deductions for losses or outgoings incurred to the extent they relate to holding vacant land, unless they are incurred in the course of a business the taxpayer carries on or 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, uses the land in carrying on a business.
However, technical tax experts like Darren Wynen, from the firm Insyt, believe that these changes will unfairly impact Australians with self-managed super funds (SMSFs).
“What the government has said effectively is that if vacant land is not being used in one of two ways, either as a business that is being conducted or by certain excluded entities, then that claim will be knocked out. If we look at SMSFs, an SMSF doesn’t traditionally carry on a business,” he warned.
“The second [issue] is that the deduction might be okay if it used by an associated entity, but due to the way laws are currently drafted, an SMSF is not regarded as a connected entity or an affiliate because it’s basically not considered to be a related party for the purposes of these measures.”
Mr Wynen said this means that in genuine situations where farming land is leased to a related party, for example, the SMSF won’t be considered to be a related party and therefore won’t have the ability to claim interest or other holding costs.
“The SMSF might have a limited recourse borrowing arrangement to buy that land and it may be genuinely used and the SMSF will still be unable to claim. It seems that SMSFs are being unfairly targeted in this way,” he said.