Tax deductions you can claim on your investment property
Investment properties (or properties used for income-producing purposes) have unique tax deductions that you can use to ...
While on the whole, this year’s budget was good for property investors, there’s one little thing nestled away in one of the budget papers — changes to vacant land tax. Here’s what it means for investors.
The one singular change that could see property investors that develop or build to rent getting riled up are the changes to vacant land tax, which will now see deductions not available to those who own vacant land with the intent to build straight away.
Peter Koulizos, chairman of the Property Investment Professionals of Australia, said that this change could actually work against what the government has set out to do and may deter investors who build to rent.
“They [the government] are going to penalise people who've bought land and who are going to build a property to rent by not allowing them to claim those deductions while the land is vacant and before the house is built,” Mr Koulizos said to Smart Property Investment.
“The reality is, even if you started the DA process on day one, it is going to take a least a year before your house is available for rent.
“Even if you did the right thing and started the process as soon as possible, you're being penalised because the interest that you're paying for that year is not tax deductible, neither are some of those other expenses like maintenance expenses, tax deductible.”
Consulting with his account, who Mr Koulizos said is a property specialist, the two of them both believe there will be unintended consequences as a result.
“What the federal government doesn't want is for people to buy land and to sit on it forever,” he said.
“I understand that, but I think it would be a much better proposition if they said that if you hold onto the land without doing anything for more than twelve months, okay, then you can't claim those deductions.
“That, I don't have a problem with, but to start penalising people from day one when it takes so long to get approvals and so long to build, I just don't think it's fair.”
Tyron Hyde, director of Washington Brown, mentioned to Smart Property Investment that business structures or corporate entities would be exempt from this decision.
“So for instance, Novak or a large developer, that they won't have ... trading stock or development stock in the future, that these measure won't apply to them,” Mr Brown said.
“It's only for someone who might buy in their own name a vacant block of land down the coast, one day they want to build a holiday home on it, but in the interim, while they think it's an investment, they won't be able to claim deductions on it.”
While this change will impact those who build to rent and developers, typical property investors are likely to not be hampered this.
Simon Pressley, managing director of Propertyology, said that while he noticed the change, he did not take much interest in it because “I don't think it will affect too many of us, and even those who it will affect, it's not in [a] great way”.
“My understanding of it is that let's say if you purchased a reasonable sized parcel of land, set it up today, and the intent was to build something on it, and let's say it takes you 12 months to get your plans drawn up and approved and all that sort of stuff before you start construction … they've tightened it up and said, 'You can't claim expenses until you're actually receiving income’,” Mr Pressley said.