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?)?
#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.
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%).