How long is tax deductibility abailable on vacant land, with intent to build?

[Wayfarer73]

I have a house on a double block, and am looking at removing the house and building 2 side by side. I will probably have to build them 1 after the other.

My question is, when I remove the house, I also remove the income, therefore remove the deductibility of the vacant block. Is there a grace period for this, or do I maybe need a building contract to prove intent?
Cheers
Wayfarer73

 

[Propertunity]

There is no set time frame. But you must be able to show consistent, timely and ongoing efforts of your intent to build. Getting plans drawn up, obtaining quotes from builders, applying for a BA etc all would demonstrate your intent.

 

[Rolf Latham]

Hiya

We have advice from clients accountants that up to 3 years is possible, I had a personal one where it took us 2.5 years for various reasons and the accttant was fine with it, using Steele V ATO as a guide

t
arolf

 

[Terryw]

I think the Steele's situation was that they acquired the land and then sold it about 10 years later - without every having built anything. (going from memory here!).

 

[agent007]

I have a house on a double block, and am looking at removing the house and building 2 side by side. I will probably have to build them 1 after the other.

My question is, when I remove the house, I also remove the income, therefore remove the deductibility of the vacant block. Is there a grace period for this, or do I maybe need a building contract to prove intent?
Cheers
Wayfarer73

It took me 4y to build in one of mine. As mentioned, your intentions matter. I guess that the issue would be if after years of -ve gearing a block of land you decide to sell it without building on it.

 

[McNamara and Co]

Tax deductible interest

In will come down to the facts of each case. Specifically your intention.

See Paragraphs 25 and 26 of Tax Ruling 2004/4

http://law.ato.gov.au/atolaw/view.htm?DocID=TXR/TR20044/NAT/ATO/00001

Also from the ATO website:

Income tax deductions

For land treated as a capital asset, you generally can't claim income tax deductions for expenses associated with owning it - such as interest on an investment loan - because the land doesn't generate income. You can add these expenses to the capital cost of the land for the purposes of working out any capital gain or capital loss when you sell it.

However, if you buy vacant land with the intention of building a rental dwelling on it, you can claim tax deductions for expenses such as loan interest and council rates. To be entitled to these deductions you must build the dwelling in a reasonable period of time and make it available for rent as soon as the dwelling is completed.

 

[devo76]

I had this same question answered by a ATO private ruling last week.While the answer was yes, it is deductible. They gave no time limit. As long as the connection remained and it could be proven that you were " moving forward in your efforts to create the income producing asset.

This is my case but. I guess everyone is different.

Cheers

 

[nathank]

It took me 5 years to develop and build the IP that I am now renting out.

The advice I was given by my accountant was that as long as you can demonstrate that it was for the purpose of investment, you can claim all expenses 100%. My accountant wasn't comfortable claiming costs until there was significant progress made, i.e. a DA submitted to council.

What you need to do is work out which are part of capital (i.e. plans, surveyors etc.) and what can be expensed each year as running/holding costs (interest, council fees).

What you need to be careful off is you can only change your tax returns 2 years in areas, so anything before that is capitalised and offset when you sell.