Buying house Vs Buying land

What is the difference in terms of tax benefits and govt benefits, when you buy land VS when you buy house (first time). One that I know is that you won't get FH buyer grant when buying land. Any other differences?
 
Extremely basic Tax Benefits:

1. If you purchase land for an investment purpose, the interest will not be deductible in the year it is incurred but it will be capitalised to form part of the cost base when it goes to selling.

2. If you purchase a house for an investment purpose, the interest will be deductible in the year it is incurred and thus will reduce your taxable income.

3. If you purchase a property, house/land or land for personal use there is no tax benefits - aside from main residence exemption when you sell (NOT APPLICABLE TO LAND ALONE). Tax benefits are only created when certain expenses are incurred in the process of earning income.

4. Potential for special building write-off with newer dwelling - investment purposes.

In all honesty I could go all day, these are only the tip of the iceberg. I need more information. What is your goal/plan? What size land (i.e. over 2 hectare?)?
 
Is there stamp duty on new builds? I don't recall seeing it in any of our paperwork, and we paid barely $50 in stamp duty with our land. So if I'm right, there's a massive saving right there. And in our area it is bare minimum $100k cheaper to build than buy established - another massive saving.

But then in most states you get stamp duty exempted for your first house up to a particular value anyway, so that is more important for second home buyers.
 
Extremely basic Tax Benefits:

1. If you purchase land for an investment purpose, the interest will not be deductible in the year it is incurred but it will be capitalised to form part of the cost base when it goes to selling.

2. If you purchase a house for an investment purpose, the interest will be deductible in the year it is incurred and thus will reduce your taxable income.

3. If you purchase a property, house/land or land for personal use there is no tax benefits - aside from main residence exemption when you sell (NOT APPLICABLE TO LAND ALONE). Tax benefits are only created when certain expenses are incurred in the process of earning income.

4. Potential for special building write-off with newer dwelling - investment purposes.

In all honesty I could go all day, these are only the tip of the iceberg. I need more information. What is your goal/plan? What size land (i.e. over 2 hectare?)?

Hi Donners,
#1. I couldn't understand properly when you say interest will be capitalized. What benefit it will be do me as a land owner?

I am planning to take small loan from the bank around $150k and buy small chunk of land ~350 sq.m in a developing subdivision, suburb, etc. My intentions are to build my custom house on it after 3-4 yrs (when I hv money). I am currently living in a rental house in Melbourne.

I was wondering if land purchase will actually help me to get some tax rebate. I am new to Australia, pardon my ignorance.
 
There's absolutely no tax benefit to sitting on vacant land for 3-4 years. You probably won't even be able to do it in a new estate - mostly they want you to build fairly soon after buying.
 
Hi Donners,
#1. I couldn't understand properly when you say interest will be capitalized. What benefit it will be do me as a land owner?

I am planning to take small loan from the bank around $150k and buy small chunk of land ~350 sq.m in a developing subdivision, suburb, etc. My intentions are to build my custom house on it after 3-4 yrs (when I hv money). I am currently living in a rental house in Melbourne.

I was wondering if land purchase will actually help me to get some tax rebate. I am new to Australia, pardon my ignorance.

If your intention is to build your main residence on the land (i.e. for you to call it home), this is regarded as personal expenditure and therefore there are no tax deductions. If you build on the land within 4 years you will receive what is known as the main residence exemption. You will only receive this exemption on the land when a dwelling has been constructed and again it must be within 4 years of the purchase of the land. If you qualify for main residence exemption, when you sell your property you will not be subject to capital gains under Australian taxation law.

The following is purely for your information and I stress is not applicable to your scenario that you have described:

Re: capitalised interest. If it were an investment vehicle, to make things simple, if you were to purchase 350m2 for $150k, incur interest in year 1 of $10k, this $10k would be "capitalised" onto the original purchase price of $150k to form a cost base of the land for Capital Gains Tax purposes at the end of year 1 of $160k ($150k + $10k = $160k) so that when you sell, for arguments sake for $200k, you will only be subject to $40k in capital gains tax and not $50k ($200k - $160k = $40k). If you hold the land for a minimum of 12 months you would also be eligible for what is known as a Capital Gains Discount of 50% so that only $20k would be assessable income ($40k x 50%).

It can be a complicated system, I've had the best part of 10 years experience/study. This is why I would recommend you talk to your financial professional with all your specific details.
 
Re: capitalised interest. If it were an investment vehicle, to make things simple, if you were to purchase 350m2 for $150k, incur interest in year 1 of $10k, this $10k would be "capitalised" onto the original purchase price of $150k to form a cost base of the land for Capital Gains Tax purposes at the end of year 1 of $160k ($150k + $10k = $160k) so that when you sell, for arguments sake for $200k, you will only be subject to $40k in capital gains tax and not $50k ($200k - $160k = $40k). If you hold the land for a minimum of 12 months you would also be eligible for what is known as a Capital Gains Discount of 50% so that only $20k would be assessable income ($40k x 50%).

Understood the concept. Seems like buying land and building is a pain unless property is your main profession and you have time to chase over people. Which is not for me as I am a software professional. Will look at other options.
 
Double storey house?

Justed wanted to check why most of the houses in Melbourne are single storey houses. Why don't people build at least 2 storeys to save on land and maximize living area. Any constraints with double or triple storey buildings?
 
Most of the houses in AUSTRALIA are single storey and yes, there usually are restrictions on 2 or 3 storeys.

Australians like their big, sprawling houses that take up most of the land. Go figure.
 
The constraints on double storey aren't that great anymore, it's more the cost of building two storey compared to single. The huge increase in $/sqm is certainly an issue.

Gools
 
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