Buying Land

Hi everyone, I'm very new to all of this and just trying to get my head around a few different concepts and strategies. Can someone can point me to a resource or can help me with the basics of buying a vacant block of land with the intention of building an IP down the track. My dad wants to buy a block of land in anticipation of retirement and I'm considering buying the block, build a basic shed or similar in a few years which he would then rent from me whilst doing a bit of travelling. Would GST apply to the purchase? I assume that as the block will not be income producing until the shed is built (unless I can get an agistment in the meantime?) that expenses etc would not be tax deductible? If for whatever reason I sold down the track either before or after building something what happens then in relation to tax? Are the expenses incurred before the build done factored in for CGT purposes? Is there anything else that I need to be aware of or consider?
 
Mainly, what is the opportunity cost of you buying a block of land that doesn't pay you rent for a few years? Regardless of whether you can deduct the interest payments (or capitalised), would you do better buying 'normal' IPs instead?
Alex
 
If it is to be an investment property then you can claim a number of expenses .
Banks wont probably lend you funds if you only submit the land as security.You thus need to pay the full amount .
With a normal house and land setup you can normally expect a 20 % deposit
 
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Redsquash I disagree. Depending on where the block is you will be able to borrow, and with ahouse and land set up wht a 20% deposit, it would depend on the individual lending circumstance. We got 10% on one of ours and 5% on the other 3.
 
Redsquash I disagree. Depending on where the block is you will be able to borrow, and with ahouse and land set up wht a 20% deposit, it would depend on the individual lending circumstance. We got 10% on one of ours and 5% on the other 3.

However did you use other collateral to secure your land borrowings.
If not , which bank are you referring to.

Didn't you apply to borrow funds for land based on building 4 houses on 4 blocks
 
If it is to be an investment property then you can claim a number of expenses .
Banks wont probably lend you funds if you only submit the land as security.You thus need to pay the full amount .
With a normal house and land setup you can normally expect a 20 % deposit

I know of two people who have paid for land (Melb metro) with a 20% deposit and they didn't require to put up anything else as security. I don't know the bank, but I am almost certain it was one of the majors...
 
Can someone can point me to a resource or can help me with the basics of buying a vacant block of land with the intention of building an IP down the track.

I assume that as the block will not be income producing until the shed is built (unless I can get an agistment in the meantime?) that expenses etc would not be tax deductible?
You will need specific advice but the expenses should be tax deductable if it is your intention to build an IP. From the ATO website:
ATO said:
Similarly, if you take out a loan to purchase land on which to build a rental property or to finance renovations to a property you intend to rent out, the interest on the loan will be deductible from the time you took the loan out. However, if your intention changes – for example, you decide to use the property for private purposes and you no longer intend to use it to produce rent or other income – you cannot claim the interest after your intention changes.
 
You will need specific advice but the expenses should be tax deductable if it is your intention to build an IP. From the ATO website:

Yes, this is a beauty. Every accountant I have had for the last 3 years has said to me that the interest on vacant land is not tax deductable, (even though I had explained that I always intended to build an IP on it :rolleyes:)

Last week I went to see another accountant who said the same thing. "Hang on" I said, "I have just been in touch with the ATO to clarify this issue", and then showed her one of the booklets that they provide on rental properties. She then had a read and started filling in my ammendment for the last 3 years. :)

I should add that the ATO were very helpful and posted out more than enough information to me. Just remember though that it is the intention
for which you wish to use the land that makes it a tax deduction.

Thank you to another SS member that put me onto this recently. Happy days !

Phil:)
 
Thx for that link Yoyo....here's the relevant text......have never seen it expressed so clearly before.....

"Similarly, if you take out a loan to purchase land on which to build a rental property or to finance renovations to a property you intend to rent out, the interest on the loan will be deductible from the time you took the loan out. However, if your intention changes – for example, you decide to use the property for private purposes and you no longer intend to use it to produce rent or other income – you cannot claim the interest after your intention changes."

Does anyone know how long an intention is???? how about 7 years???? always possible to argue you other investments went bad and you needed 7 years before you could save to build the IP.


 
I asked the ATO what would happen if my intention changes. They said, 'no worries - it just means that said land no longer is a tax deduction'

If they (ATO) really wanted to question my motives, I could provide details of conversations / meetings with builders etc, so I could easily prove it, but I suppose it could open up some grey areas for others.

Phil
 
Thank you to all who posted replies - interesting that the ATO will let you claim based on your intentions. I hope that this has helped other members and like Phil that there members who now have their accountant doing amendments to previous returns on their behalf!

Thanks once again!
 
Last week I went to see another accountant who said the same thing. "Hang on" I said, "I have just been in touch with the ATO to clarify this issue", and then showed her one of the booklets that they provide on rental properties. She then had a read and started filling in my ammendment for the last 3 years. :)

I should add that the ATO were very helpful and posted out more than enough information to me. Just remember though that it is the intention
for which you wish to use the land that makes it a tax deduction.

Phil:)

Thank you to everyone for the information in this thread, it has helped me clarify some things which I wasn't sure about.

Phil, could you please advise the names of the publications that you refer to above from the ATO as i'm interested in getting the same ones sent to me.

thanks in advance

P.S Does it mention anywhere how they determine what the 'intention' is or when 'intention' is deemed to have changed? (I hope that makes sense!) e.g. If I buy a block of land with the intention to build an IP, is there a time limit as to when I must build the IP by (i'm sure the block can't be sitting vacant for years and years)?
 
...Thank you to everyone for the information in this thread, it has helped me clarify some things which I wasn't sure about.

Phil, could you please advise the names of the publications that you refer to above from the ATO as i'm interested in getting the same ones sent to me

Hi Tinky,

It is the "Rental Properties 2007" guide, (NAT 1729-6.2007, pg 10). As Yo Yo ma has already stated, just jump on the ATO web-site and have a squizz. Heaps of info there. Alternatively, call 13 28 61 and speak to someone who can post any info you want out to you free of charge. I had a great guy help me out.

Phil. :)
 
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