Claiming deductions for vacant land

If you’ve bought a block of land to build a rental property on, you may be entitled to claim a tax deduction.

If you’re able to show that you’ve taken active and genuine steps to build a rental property and make it available for rent as soon as it’s completed, then you can claim a deduction for expenses such as loan interest, council rates and other ongoing costs.

Sometimes delays occur, and where these are beyond your control, you could still be entitled to a tax deduction.

The best approach is to keep records of all steps you have taken and document any delays. Let’s look at some examples of active and genuine steps as well as delays beyond your control.

Examples of taking active and genuine steps include:

  • Seeking finance for the construction from a financial institution or disposing of other investments to fund the construction
  • Engaging with builders to understand the construction process and obtain building cost estimates
  • Engaging with architects to design a suitable house plan
  • Researching council development plans or possible covenants over the property
  • Meeting with local real estate agents to work out expected rental returns.

Examples of delays beyond your control include:

  • Disputes in the approval process with local council or neighbours
  • Your builder going into liquidation
  • The property being impacted by a natural disaster.

There are some delays that are unacceptable. These include holding the land to generate capital growth even if you think you might build on it in the future, or because there has been a downturn in the real estate market; or choosing not to build until you can afford the house you want.

When you decide to sell the land or your intention to build a property to rent changes, you must stop claiming deductions immediately. If you choose to sell the property, you may need to pay capital gains tax, so be sure to keep records of any expenses incurred including those you’ve already claimed deductions for.

More like this

If you like this article, you might be interested to know that we share useful thoughts and information like this in our monthly financial insights email. You can subscribe to that email here. All subscribers receive a copy of our e-book: The 5 Key Pillars of Financial Independence.

General Advice Disclaimer

This article contains general advice only, which has been prepared without taking into account the objectives, financial situation or needs of any person. You should, therefore, consider the appropriateness of the information in light of your own objectives, financial situation or needs and read all relevant Product Disclosure Statements before acting on the information. Whilst every care has been taken to ensure the accuracy of the material, Paradigm Strategic Planning or Sentry Advice Pty Ltd will not bear responsibility or liability for any action taken by any person, persons or organisation on the purported basis of information contained herein. Without limiting the generality of the foregoing, no person, persons or organisation should invest monies or take action on reliance of the material contained herein but instead should satisfy themselves independently of the appropriateness of such action.

Paradigm Strategic Planning Pty Ltd is an Authorised Representative of Sentry Advice Pty Ltd AFSL 227748

Scroll to Top