Company vs Trust - Is it that simple ?

Thats right. the laws on this changed recently.
The only exception is for companies owning land - but only in their own rights and not as trustee.

 

it depends. from 1 July 2019 things have changed.

The costs associated with holding vacant land (this will include interest, council rates, land tax) will no longer be deductible.

Unfortunately, there are no ‘grandfathering’ provisions in the legislation. So what this means is that if you held vacant land prior to 1 July 2019 you are still denied these deductions going forward. Ouch !!

These costs will however be able to be included in the cost base. What this means is that when you eventually sell the property these costs will reduce the capital gain you make on sale.

There is an exclusion if you are carrying on a business. So, if you are a property developer and hold vacant land as part of your property development business then the legislation won’t affect you.

 

But if you have a isolated profit making activity.....
This likely poses no serious concern. The interest and holding costs will defer and become a element of the asset cost so when it is sold the profit is inclusive of allowing the deduction on sale...Much the same as it it had been deductible earlier if the entity only produces income from that activity.

The key impact is for owners of land intending to hold and rent. What may have previously been deductible as a holding cost or a steeles case type deduction is now not available until after the premises are completed, have an occ certificate AND are available for rental. Deductions for vacant land


For owners of property that DOES satisfy the structure test the former views in steeles decision mights till be available but it would worth advice to confirm this. If you buy a old dwelling on land and then construction on part of the land (ie a spliter dev) then a portion of the holding costs may be non-deductible. The old dwelling doesnt make 100% of the land subject to deductions.

What is still deductible :
Fred and Jane buy a investmnet property in September 2019. They intend to renovate it slightly. This is expected to take 3 months and then be listed for rental. This is permitted and a deduction for holding costs is allowed from the time of purchase (and interest on the deposit ?) as the land has a structure. Their renovations are not substantial. Their intention is to produce future rental income in the manner of steeles decision. Their renovation costs may form a element of the costbase and even be eligible for Div 40 and Div 43....from the date rented

 

just to clarify its only for "vacant land" etc developers that buy old properties knock them down and rebuild does it effect them?

 

Yes... the knockdown part makes it vacant land. If they k/down part then they must apportion costs. And depending if its a business or isolated profit making....

Sounds like tax advice and guidance is warranted.

What is vacant land?
Land will be considered vacant during the period the entity held the land if:

• it did not contain a substantial and permanent structure
• it contains a substantial and permanent structure and the structure is a residential premises which was constructed or substantially renovated while the entity held the land and the premises are either
  • not yet lawfully able to be occupied
  • lawfully able to be occupied but not yet rented or made available for rent

Substantial and permanent structures
A substantial and permanent structure is a building or other structure constructed on the land that is:

• significant in size or value
• not incidental to the purpose of another structure or proposed structure on the land
• not related to, reliant on, or exist to support the use or function of another structure
• fixed and enduring (not built for a temporary purpose).

Structures that are substantial and permanent include:

• a commercial parking garage complex
• a woolshed for shearing and baling wool
• a grain silo
• a homestead on a farming property.

A structure is not substantial and permanent if it only has value as an addition to another structure.

Structures that are not substantial and permanent include:

• a residential garage or shed
• a letterbox
• pipes and powerlines
• residential landscaping.