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Limiting deductions for “vacant land”


Amending legislation to limit deductions for “vacant land” operates by adding a qualifier to every provision in the tax Acts that provides for a deduction. Also, there are wider implications than merely losing some deductions, and consequences arise from the interaction with the capital gains tax regime. Although some welcome exceptions were introduced during the legislative process, traps remain for the unwary, including new tax risks for smaller-scale property developments. This includes circumstances where land with completed houses or units, incredibly, will be regarded as “vacant”. With no grandfathering, options may be limited for existing holdings of land, and some established structuring norms must now be re-evaluated. This article sets out what constitutes “vacant land”, how the new law operates to deny deductions, the available exceptions, and the broader consequences. A number of practical examples illustrate the outcomes, which then shine a light on weighing up alternative structuring options for future acquisitions of land.

Author profile

David Montani CTA
David is Nexia Australia’s National Tax Director, providing tax technical and strategic support to Nexia offices across Australia. Prior to commencing this role in 2019, David had 26 years of experience in taxation and business advisory, with the last 15 years in specialist taxation consulting, leading Nexia Perth's Tax Consulting Division. Particular areas of specialty include business restructures, property transactions, Capital Gains Tax, Division 7A and business sales. David's approach is to deliver solutions-based outcomes that assist clients in making important decisions concerning their businesses. - Current at 22 October 2020
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