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Interest Deductibility: Land
June 8, 2022
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Are interest payments on the land deductible?
Generally, the spending involved in holding vacant land cannot deduct, which includes:
- Ongoing borrowing costs, including interest payments on money borrowed for the acquisition of land.
- Land taxes.
- Council rates.
- Maintenance costs.
But the interest paid on a loan used to purchase land acquired for the purposes of building a rental property is deductible.
The period that the interest remains deductible before building the rental property is decided by the ATO based on the surrounding facts of each individual case.
The period that the interest remains deductible before building the rental property is decided by the ATO based on the surrounding facts of each individual case.
The ATO will allow time for the rental property to be built however there needs to be evidence that the taxpayer has made an effort to build a rental property.
The ATO will however disallow the deduction if they deem that the land was not originally purchased to build a rental property.
The ATO will however disallow the deduction if they deem that the land was not originally purchased to build a rental property.
Some facts that would be considered by the ATO when making their decision would include:
- Was the original loan an investment or home loan?
- The date the residential contract was signed.
- Was encumbrance approval ever granted and when.
- Were any building quotes obtained and when.
- The length of time that the land has remained vacant.
We can assist in presenting a position to the ATO in full support of the interest being assessed as deductible.
Please contact Personalised Tax Services if you would like some assistance with this.
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