Effective Date
The new ‘vacant land’ measure is applicable to holding costs incurred on or after 1 July 2019 even if the relevant land in question was held before that date. This could equally apply to a lessee as they would be considered to hold the land under the terms for the lease, which suggests that the amendments are not limited to the owner of the land.
What’s changing?
According to S.26-102, that the otherwise deductible holding costs, including interests, rates, insurance, land tax and maintenance costs, of ‘vacant land’ which may now be potentially denied.
Entities to be excluded from S.26-102
- a company;
- a superannuation fund other than a self-managed superannuation fund (SMSF);
- a public unit trust;
- a managed investment trust; and
- a unit trust or partnership of which all the members are entities listed above
Based on S.26-102(5), the abovementioned entities are able to claim deductions for vacant land holding costs given the usual requirements for deductibility are satisfied.
So basically, this new measure targets individuals, SMSFs, discretionary trusts, (closely held) partnerships and unit trusts.
If outgoings are not deductible under the new rules, they are not to be carried forward and deducted in later years. However, for assets acquired after 20 August 1991, non-deductible holding costs may form part of the third element of the asset’s cost base, based on S.110-25(4) of the ITAA.
Who might be worse off?
For assets acquired before 20 August 1991, any deductions denied under the new ‘vacant land’ rules will not be taken into account for CGT purposes as third element costs, which leads to a lower cost base.
Furthermore, if one or more CGT concessions apply, which reduce or eliminate capital gain made on disposal of vacant land, then the full benefit of having a higher cost base may not be achieved.