When you own any property in Australia it is a taxable asset so there will be tax issues.
In regard to Income tax, you are only entitled to claim expenses on Australian property against your income tax if it is income producing. So if the land is left vacant, you can not claim any costs nor do you need to lodge an annual income tax return each year unless you have other Australian income.
If you receive any income, such as adjistment on farmlands, then it is treated as a normal property and all costs such as rates, interest and upkeep can be claimed against the income generated. Any deficit can then offset other Australian income such as rental on another property, and also has the ability to carry forward for future benefit if unused.
As such, it is ideal if you can find some way to generate an income if possible.
If that is not likely, such as in the case of a vacant residential land lot, then you will not get an annual income tax deduction but you can still get a tax benefit as all holding costs are able to offset any future capital gains tax when the property is sold.
Any and all costs associated with the land need to be recorded as they will be a welcome relief from tax.
These would include:
- Annual Rates
- Land Tax
- Interest on Loan for the purchase of the land
- General Maintenance & upkeep expenses
- Architect or planning fees
When you sell the land, all these expenses are deducted from the sale price to ensure you only pay Capital Gains Tax on the net gains made. On this reduced amount, you would then be entitled to a 50% Tax Free Allowance provided that you have owned the property longer than 12 months.
Importantly, you should be aware of the need to keep these receipts for the entire period you own the land as they may be required to prove your deduction at the time of sale. It is best to keep an annual register of expenses so that you are aware what your potential tax claim is.
As a general rule, it is also best to keep higher borrowing against income producing property rather than vacant land, so if you have both then any debt reduction would be best served against the loan taken out to acquire the land rather than the rental property.
Don’t be afraid to build on the land as often the cost of increased borrowing to build a house is still less than the cost of the land alone as the rental income is then available to cover the additional expense and improve your overall tax position.
Either way the costs of holding the property will offer some tax offset in the future.
