Treasury Laws Amendment (2019 Tax Integrity and Other Measures No. 1) Bill 2019 – Parliament of Australia The proposed law has passed and been given royal assent. The changed law impacts deductions for 1 July 2019 for land acquired prior to the date or after that date. It does not apply to a company. It does not apply to a business. ie property development business or primary production business. It does apply to a unit, hybrid or discretionary trust or SMSF. The operative date is the date for deductions. Land already owned at this date is affected and not excluded. This new measure strips away ability to claim deductions for holding "vacant land" however the provisions extends beyond just vacant land. Examples of affected costs are land tax, rates, interest etc The provisions may affect anyone who seeks to demolish a structure, build a new structure etc on the land or as the law states - Hold vacant land intended for future construction. This law acts to deny deductions that were formerly permitted under the principles in Steele's decision. Steele's decision permits holding costs to be deducted where an owner constructs premises intended for future income producing use. The new law requires that the premises be completed and be available for rent with an occupancy certificate before deductions may commence. This will affect isolated profit making intentions AND those who seek to construct new rental properties. The law contains provisions which align with the GST laws so that residential premises capable of occupancy under law AND be capable of being leased must exist on the land before deductions for holding costs become deductible. This will preclude vacant land leased for trivial purposes eg agistment, rental of a shed etc. the structure must be substantial and permanent and in use and capable of use to generate income. The proposed law was modified from its original draft. The amended provisions allow for a three year time period to exclude a property that would be treated as vacant land due to a significant or unusual event or occurrence outside control of the owner eg a fire, flood, accident, asbestos, structural defect etc to the structure that is / was on the land. The modified provision will permit the deductions from the time of that event for three years. Events which do not affect the structure are ineligible eg financial difficulties of the owner, council refusal to approve etc. Other modified rules have been added for land USED in a primary production business that produces income from its rental cost however for this provision to apply the owner must either be a company OR the land must be leased, hired or licensed to another entity. Primary Production Business takes its ordinary meaning in tax law and disregards agistment etc. It generally requires animal or plant cultivation and outputs. The new law does not seemingly address the tax structure of a unitholder who borrows to acquire units in a fixed trust. The law applies where a trustee seeks to borrow. In the case of a unitholder where the borrowing is undertaken by the UNITHOLDER who buys units in a trust which seeks to construct or acquire income producing property this does not fall within the scope of the law. To that extent, that investor may be able to still claim interest deductions under the Steele's case principles for the interest where the trust is expected to produce future income. The trust may need to ensure it can meet this test by investing $100 in a interest bearing bank account so that $1 of income can be distributed. The new law does not seemingly address another Steele's decision impact. A investor who seeks to contract to buy a property OTP or to buy an existing dwelling and who has an intention to use the premises in either case to produce future rental income may incur interest costs prior to settlement. eg on a deposit. The taxpayer is not acquiring or owning vacant land. The option for investors to construct new dwellings will be impacted by this issue. A Granny Flat construction does not appear impacted BUT MAY be.