Hi my husband and I have a block of land which we bought in 2011. We are selling it and I have heard that if we do not make a profit that we my be able to claim expenses, interest,rates etc through our tax. Is this the case?
Regards Patricia

Hi Patricia

It all comes down to intention you had when you bought land.

A vacant land acquisition is usually considered a capital asset and any profit or loss is subject to Capital Gain Tax (CGT). When you make a profit it's all nice and good as you can claim a capital gain discount of 50% on the profit. When you sell it for a loss, the capital loss is not offset against other income but is carried forward to be offset against any future capital gain. You generally can't claim income tax deductions for expenses associated with owning it – such as interest on an investment loan, rates, etc – because the land does not generate income. When selling the land, you can add these expenses to the capital cost to work out any capital gain or capital loss.

I think where you might be getting confused is the fact that when you buy vacant land with the aim of building a rental dwelling on it, you can claim tax deductions for expenses such as loan interest and council rates.

For the associated costs to be deductible, the land should be able to be treated as trading stock for income tax purposes rather than as a capital asset and this would be the case if:
1. You had begun a business activity that involves dealing in land, or
2. You held the land for the purpose of resale.

I note that when land is treated as trading stock GST is applicable and you would need to include GST in selling price.

Hope this helps.

Suresh Rajani