Renting vacant land to park truck

From: Julie J

Hi all,

I have a vacant block of land. My neighbour wants to park his truck on my block and has offered to pay $10 per month to park his truck there.

So my question is, as I am now generating an income from this vacant block, can I claim the interest on my loan that I took out to purchase the block, on my tax return?

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Reply: 1
From: Dale Gatherum-Goss

Hi Julie

There is no "correct" answer to your question, I am afraid.

Yes, the block of land now has an income attributable to it and this does mean that the interest is tax deductible. However, the tax office on inspection, are likely to look at a commercial rate of income for this block to justify the interest deduction in full.

So, you may have to justify this income as commercially reasonable under an audit, or, be forced to claim only part of your interest as a tax deduction.

Messy, very messy . . .

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Reply: 1.1
From: Dale Gatherum-Goss

Me again

I just wanted to explain why this might look odd tot he tax office . . .

Rent In 120

Less Expenses

Council rates 560
Interest on loan 7,000
Public Liability Insurance 560

Total Expenses 8,120

Tax Loss $8,000

Tax refund at 31.5c in the dollar $2,520

The question you are likely to be asked is along the lines of how did you expect to make a profit from this activity now, or in the future?

Does this help a little more?

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Reply: 1.1.1
From: Richard Hunt


Perhaps the question you may also wish to explore is -

"Can I claim a tax deduction for interest and other expenses irrespective of whether I enter into the truck transaction?"

The reason I raise this is that in recent years there have been a number of court decisions which have been quite sympathetic to the notion of taxpayers being able to claim a tax deduction for interest on loans where the derivation of assessable income does not coincide with incurring the interest.

At the risk of over-simplifying the arguments, if a taxpayer can sustain an argument that the interest was "incidental and relevant" to earning assessable income, notwithstanding that this income may be derived some time in the future, then it is open for them to claim a tax deduction for this interest.

It is arguable that some examples of where this connection may be apparent are:

- investor purchases land with intention to build a dwelling and rent it;
- investor buys land with intention of resale at a profit; or,
- investor purchases land with intention of developing land and operating a business.

Whether or not this represents an opportunity for you will depend on your particular factual situation and risk profile.

Tax practitioners and the ATO are still finding their way on these issues, therefore if you wish to explore the possibilities I would recommend to seek quality professional tax advice.

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From: Julie J

thanks to Dale & Richard for your input.

I will talk to my tax accountant about the issues you have raised. I am not really fussed I bought the block to build a house on in 12 months or so to sell at a profit, it was just a bonus when the neighbour offered to pay to park his truck.

thanks again

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