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Ruling

Subject: Holding costs on land

Question

Are you entitled to a deduction for interest and other holding costs on a block of land?

Answer

No.

This ruling applies for the following period

Year ended 30 June 2009

Year ended 30 June 2010

Year ended 30 June 2011

Year ended 30 June 2012

The scheme commenced on

1 July 2008

Relevant facts

You purchased a block of land in 200X with the intention of building an investment property.

Soon after, you cleared, levelled and raised the land.

Soon after purchasing the land, you accepted a job in another city which meant that you had to put your plans to build on the property on hold.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income.

In Steele v. FC of T (1999) 197 CLR 459; 99 ATC 4242; (1999) 41 ATR 139 (Steele's Case), the High Court considered the deductibility of interest expenses incurred on borrowings to purchase land intended to be developed for income production. It follows from Steele's Case that interest incurred in a period prior to the derivation of relevant assessable income will be incurred in gaining or producing the assessable income in the following circumstances:

While Steele's Case deals with the issue of interest, the principles can also be applied to other types of expenditure including local council, water and sewage, rates, land taxes and emergency services levies.

While you may have intended to build an investment property on the land, you have not made the continuing efforts to progress your intention and the period was so long that the necessary connection between the outgoings and producing assessable income has been lost. It is considered that the expenses were incurred at a point too soon to be incurred in producing assessable income from the property.

Therefore, you are not entitled to a deduction for expenses related to holding the land.

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