Income Tax Assessment Act 1997

CHAPTER 2 - LIABILITY RULES OF GENERAL APPLICATION  

PART 2-5 - RULES ABOUT DEDUCTIBILITY OF PARTICULAR KINDS OF AMOUNTS  

Division 26 - Some amounts you cannot deduct, or cannot deduct in full  

Operative provisions  

SECTION 26-102   Expenses associated with holding vacant land  

Limit on deduction

26-102(1)    
If:

(a) at a particular time, you incur a loss or outgoing relating to holding land (including interest or any other ongoing costs of borrowing to acquire the land); and

(b) at the earlier of the following (the critical time ):

(i) that time;

(ii) if you have ceased to hold the land - the time just before you ceased to hold the land;

there is no substantial and permanent structure in use or available for use on the land having a purpose that is independent of, and not incidental to, the purpose of any other structure or proposed structure;

you can only deduct under this Act the loss or outgoing to the extent that the land is in use, or available for use, in carrying on a business covered by subsection (2) at the time applying under subsection (3).

Note 1:

The ordinary meaning of structure includes a building and anything else built or constructed.

Note 2:

The land need not be all of the land under a land title.

26-102(2)    
A *business is covered by this subsection if the business is carried on for the purpose of gaining or producing the assessable income of one or more of the following entities:

(a) you;

(b) your *affiliate, or an entity of which you are an affiliate;

(c) if you are an individual - your *spouse, or any of your *children who is under 18 years of age;

(d) an entity *connected with you.

26-102(3)    
The time applying under this subsection is the critical time unless:

(a) the business referred to in subsection (1) ceases before the critical time; and

(b) the loss or outgoing is otherwise deductible because of the use or availability for use of the land at an earlier time or during an earlier period; and

(c) at that earlier time or during that earlier period the land was in use or available for use in carrying on that business;

in which case the time applying under this subsection is that earlier time or the end of that earlier period.

Disregard certain residential premises if not rented etc.

26-102(4)    
For the purposes of paragraph (1)(b), treat a building as not being a substantial and permanent structure if it is *residential premises constructed, or *substantially renovated, while you hold the land unless:

(a) the residential premises are lawfully able to be occupied; and

(b) the residential premises are:

(i) leased, hired or licensed; or

(ii) available for lease, hire or licence.

Note:

If all of the structures on the land are disregarded under this subsection, then subsection (1) may deny you a deduction for a loss or outgoing relating to the land.

Exception - kind of entity

26-102(5)    
Subsection (1) does not stop you deducting a loss or outgoing if, at any time during the income year in which the loss or outgoing is incurred, you are:

(a) a *corporate tax entity; or

(b) a *superannuation plan that is not a *self managed superannuation fund; or

(c) a *managed investment trust; or

(d) a public unit trust (within the meaning of section 102P of the Income Tax Assessment Act 1936 ); or

(e) a unit trust or partnership, if each *member of the trust or partnership is covered by a paragraph of this subsection at that time during the income year.

Exception - structures affected by natural disasters or other exceptional circumstances

26-102(6)    
Subsection (1) does not stop you deducting a loss or outgoing relating to holding land if:

(a) had an earlier time been the critical time (see paragraph (1)(b)), paragraph (1)(b) would not have applied to you for the land because of the existence at that earlier time of a substantial and permanent structure on the land; and

(b) after that earlier time, paragraph (1)(b):

(i) began to apply to you for the land wholly or mainly because of a circumstance affecting that structure; and

(ii) continued to do so at the critical time; and

(c) the circumstance was exceptional and beyond the reasonable control of you, and of all the entities referred to in paragraphs (2)(b), (c) and (d); and

(d) the critical time happened before:

(i) the third anniversary of the time paragraph (1)(b) began to apply to you for the land as described in subparagraph (b)(i) of this subsection; or

(ii) such later time as the Commissioner allows.

26-102(7)    
If subsection (6) applies to you and you deduct the loss or outgoing, you must keep written records of:

(a) the circumstance; and

(b) the circumstance ' s effect on the affected structure;

until the fifth anniversary of the end of the income year in which you incurred the loss or outgoing.

Note:

There is an administrative penalty if you fail to keep these records (see section 288-25 in Schedule 1 to the Taxation Administration Act 1953 ).

Exception - land held by primary producers

26-102(8)    
Subsection (1) does not stop you deducting a loss or outgoing relating to holding land if, at the critical time (see paragraph (1)(b)):

(a) the land is under lease, hire or licence to another entity; and

(b) you are, or an entity referred to in paragraph (2)(b), (c) or (d) is, carrying on a *primary production business; and

(c) the land does not contain *residential premises; and

(d) residential premises are not being constructed on the land.

Exception - land in use or available for use in carrying on a business

26-102(9)    
Subsection (1) does not stop you deducting a loss or outgoing relating to holding land if, at the critical time (see paragraph (1)(b)):

(a) the land is under lease, hire or licence to another entity as a result of a dealing at *arm ' s length; and

(b) the land is in use, or available for use, in carrying on a *business; and

(c) the land does not contain *residential premises; and

(d) residential premises are not being constructed on the land.