Federal Budget 2018: Implications for Vacant Land Owners

Vacant land owners in Australia were the subject of tax incentive cutbacks in this year’s budget. The measures are set to reduce tax incentives for vacant land owners, who will be unable to claim certain expenses, such as interest and maintenance costs associated with the property in income tax returns. This is estimated to save $50 million, discourage “land banking” and increase the supply of land in the property market.

What is “Land Banking”?

“Land Banking” describes real estate investment involving the purchasing of undeveloped vacant land, with the view to selling this land on at a profit once development has been approved or the property market improves.

Previously, vacant land owners could claim such expenses as council rates, maintenance costs and interest costs, despite having no intention to earn an income from the land.

Vacant land implications

These tax benefits can only be claimed after a physical property is built and approved for occupancy. Stamp duty is not affected.

When will this come into effect?

From July 2019, vacant land owners will be denied claims for expenses associated with the holding of land. This applies to all vacant land held at July 2019, irrespective of the purchase date.

Implications for stakeholders

Concerns for developers

The tax restriction will apply for developers who are seeking approval for development of house and land packages. Developers need to be aware that they will not be able to seek to claim expenses if their development is slow to get off the ground, even if they are waiting for development and building approvals. As we know, in growth area land parcels, the logistics of developing vacant land can take years. However, The Property Council of Australia has received informal clarification that property developers who operate business on the land should not be affected by the measures. Read more here.

The good news for buyers

If you are looking to buy a house or unit “off-the-plan” this could spell good news for you. Developers may feel some pressure in speeding up the development of the land now that they are unable to obtain tax breaks. Further, there are predictions in the market suggesting that the removal of these claims will free up land, easing pressure on the housing market.

The bad news for buyers

If you own, or are looking to purchase vacant land to build your first home, or are building to rent you will not be able to claim these benefits until your house has been constructed.

Good news for primary business

This measure will not apply to land used to carry out a business. For example, if you are in the business of primary production, you may continue to claim tax deductions as an income is generated for this purpose.

If you are looking to buy vacant land and want to know more, please get in touch with Olsen Lawyers on 07 3846 5288 or admin@olsenlawyers.com.au to discuss.