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
– 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.
For more tips to go: www.ato.gov.au/rental
Please note – the tax information provided here is of a general nature only. Please seek a specialist tax adviser to ensure your particular circumstances have been considered prior to undertaking specific taxation strategies.
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