Edited version of private advice

Authorisation Number: 1051881886490

Date of advice: 05 August 2021

Ruling

Subject: Rental deductions for vacant land

Question

Are you entitled to claim deductions for the holding costs of vacant land while new dwellings were constructed due to exceptional circumstances?

Answer

Yes. Your circumstances are considered to be exceptional circumstances as per section 26-102 of the Income Tax Assessment Act 1997 (ITAA 1997) and are deductible. Further information about deductions for vacant land can be found by searching 'QC60628' on ato.gov.au

This ruling applies for the following period periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The property was acquired in XX as joint tenants. You appointed a property manager.

The property had been used for rental purposes since the date the property was acquired.

The property manager advised the need for maintenance to be done to the property. While conducting maintenance, loose fill asbestos was suspected in the ceiling cavity.

The tenants vacated the property soon after loose fill asbestos was suspected.

You registered for the state's loose-fill asbestos free sample test.

Testing for loose-fill asbestos was conducted approximately a year and a month after registration.

Loose-fill asbestos testing was completed three months later. The loose-fill asbestos insulation ceiling cavity report advised the sample taken did not contain loose-fill asbestos.

In the same month, you engaged the property manager to find new tenants for the property. They inspected the property and advised the property was not in a state to be lawfully occupied as there were structural defects.

Recommendation was made by the property manager for the existing property be demolished and be replaced with new properties.

You advised the property had not been properly maintained between when the tenants moved out and loose-fill asbestos testing was completed. This was due to restricted entry to the property for health and safety reasons.

You advised severe weather events caused extensive damage to the structure of the property including the roof caving in, eaves falling off, water damage to the carpets, floorboards and electrical faults.

The decision was made to demolish the existing property and to construct two new properties, a house and a granny flat.

You engaged a builder to build your new properties. It took approximately five months for the builder to prepare for construction.

A Development Consent approval (DA approval) request was lodged with the council. The DA approval was completed five months later.

Construction commenced for your new properties and took approximately one year and two months.

You were required to do additional capital works not included in the building agreement. You advised this took approximately ten months as COVID-19 impacted the availability of material and labour.

The new properties were advertised for rent and rented out to tenants.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 26-120