It would seem that whilst the current government is not about to touch negative gearing reform, there is subtle reform going on. Last year with restrictions on certain deductions for property investors and this year with restricting deductions on land bankers. Perhaps this will be a continuing process that will continue whomever is in power?
A cutback on tax incentives for vacant land was one of the few property-related measures in this year’s federal budget, released Tuesday night, and is set to add $50 million to the budget’s bottom line.
Under the move, property owners will no longer be able to claim expenses such as council rates and maintenance costs for vacant land in their tax returns.
The integrity measure will address concerns property owners are improperly claiming deductions for expenses, such as interest costs, for land they never intend to earn an income from.
To put a stop to the practice the federal government will deny deductions for costs associated with holding vacant land from July 2019.
In doing so it could curb the popularity of land banking, which holds back land that could be used for housing or other development.
Under current tax settings, property owners can get away with claiming deductions for land they never tend to make an income from while banking the land with the hopes of later selling it for a windfall when property prices have increased.
It’s a measure developers would be keeping a very close eye on, according to the Urban Development Institute of Australia’s national executive director, Kirk Coningham.
“I think one of the key issues is that it applies to land where approvals for development are being sought, so the land holder could be penalised for a lack of speed in the process,” Mr Coningham said.
“We know that it can take seven to ten years to bring house and land packages to the market in Sydney, so to be punished for the slow processing would be one big concern we would have.”
Lance Cunningham, national tax director at BDO in Australia, said denying vacant land holders from making normal deductions appeared to be an attempt to stop them holding onto land long term.
“I think it’s really aimed at property developers holding lots of land because they think they can perhaps get better profits in the future,” he said. “To try and free up some of the land for land and housing.”
Under the new tax settings, property owners would be able to claim deductions after a property was constructed on the land, the property had received approval to be occupied and was available for rent.
The measure would not apply to land owned to carry out a business, including a business of primary production.
While some denied deductions such as borrowing expenses and council rates will be able to be claimed against the capital gains tax when a property sold, costs for services such as lawn mowing and vermin control, could not be deducted at a later date.
This measure is estimated to garner the government $50 million in revenue over 2020-21 and 2021-22.