Claiming Tax Deductions For Vacant Land

If you own vacant land and hope to claim tax deductions, strict rules apply. You can only claim holding costs such as loan interest, land tax, council rates and maintenance expenses in limited circumstances.

What Counts as Vacant Land?

For tax purposes, land is considered vacant if it meets one of the following conditions:

• The land does not contain a substantial and permanent structure, or
• The land contains a residence that was built or substantially renovated while you owned it, but the residence cannot legally be occupied or has not yet been rented or made available for rent

What Is a Substantial and Permanent Structure?

Substantial and permanent structures typically include:

• A farmhouse or homestead
• A commercial garage
• Fencing
• Silos or woolsheds

Items that do not qualify as substantial and permanent structures include:

• Residential garages or sheds
• Pipes and powerlines
• Residential landscaping
• Letterboxes

These distinctions are important when determining whether the land meets the definition of vacant land.

Changes to the Tax Rules for Vacant Land

The tax treatment of vacant land changed significantly from 1 July 2019. Under the current rules, owners generally cannot claim deductions for holding costs associated with vacant land.

Before these changes, owners could often claim deductions if they held the land for income‑producing purposes or as part of a business. The updated rules now deny these deductions unless specific exceptions apply.

When You Can Claim Deductions on Vacant Land

You may claim deductions for vacant land holding costs if one of the following situations applies:

• You hold the land through a specific type of entity, such as a corporate tax entity, superannuation fund or managed investment trust
• You use the land in a business or lease it to another entity for their business purposes, provided no residence exists or is under construction on the land
• You, an affiliated entity or your spouse use the land in a primary production business, as long as no residence exists or is being built on the land

If your land meets the definition of vacant land and none of these situations apply, you cannot claim deductions for holding costs.

Exceptional Circumstances

In some cases, events beyond your control may affect the status of your land. For example, a natural disaster or major fire may destroy an existing structure or cause it to be disregarded.

Where exceptional circumstances apply, the tax office may allow an exemption that lets you claim deductions for vacant land holding costs for a limited period.

Understanding the Rules Matters

The rules around vacant land deductions are complex and tightly enforced. Understanding whether your land qualifies and whether an exception applies can help you avoid incorrect claims and unexpected tax outcomes.