Private ruling: Rental deductions - vacant land
Date of advice: 15 April 2026
Published: 29 June 2026
Ruling period: Year ended 30 June 20YY | Year ended 30 June 20YY | Year ended 30 June 20YY | Year ending 30 June 20YY | Year ending 30 June 20YY
Date scheme commenced: 1 July 20YY

Ruling: Q1: Will the Commissioner allow you to deduct holding costs for vacant land beyond the third anniversary of the date that the residential structure used as a rental property was damaged by fire as provided in section 26-102(6)(d)(ii) of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes.

Relevant facts and circumstances: On MM 20YY, you purchased a property with your spouse. On DD MM 20YY, your spouse passed away and their share of the property passed to you through their Estate. The property consisted of an approved residential boarding house. You continuously operated the property in this manner until DD MM 20YY, when the building was destroyed by an accidental fire, which was caused by a tenant. Since the fire the property has remained uninhabitable and the land unavailable for rent until such time as the destroyed building can be reconstructed. Additionally, you have continued to incur holding costs of the land. You have encountered significant delays beyond your control for the reconstruction of the building. From MM 20YY to MM 20YY, you protracted settlement negotiations with your insurer. From MM 20YY to MM 20YY, you prepared and submitted plans for approval your local council for the reinstatement of the pre-existing use of the proposed property as a boarding house. You submitted multiple pictures and emails as proof of this. In MM 20YY, your local council declined your Development Application to reconstruct the building in the form of a boarding house, as they thought that you were re-building the premises as a residential place, and therefore had abandoned the previous use of the Property. From MM 20YY to MM 20YY, you commenced legal proceedings to appeal the local council's decision on the Development Application. In MM 20YY, you were successful in your appeal to re-build a boarding house on the vacant land. From MM 20YY to date, you are working through the development process to replace the building lost in the fire. The new construction has been approved and will operate as a boarding house when completed. In MM 20YY, the re-building plan was approved. You are currently negotiating terms and costs with builders and suppliers, and you anticipate an XX-month timeframe to completion. You supplied tenancy agreements showing that the property was rented out prior to the property being damaged by fire.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 8-1 | Income Tax Assessment Act 1997 section 26-102

Reasons for decision: Summary: The circumstances causing the residential premises to be uninhabitable are exceptional and outside of your control, allowing you to deduct the holding costs for the land as provided for in subsection 26-102(6) of the ITAA 1997. The Commissioner will exercise their discretion allowing you to deduct the holding costs for vacant land beyond the third anniversary of the date that the structure was deemed to be uninhabitable as provided for in subsection 26-102(6) of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: Under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) you can deduct from your assessable income any loss or outgoing to the extent that it is incurred in gaining or producing your assessable income. However, you cannot deduct a loss or outgoing to the extent that it is of a capital, private or domestic nature, or relate to the earning of exempt income. Subsection 26-102(1) states that costs of holding land such as council rates, land tax and maintenance costs, can only be deducted where there is a substantial structure available for, or in use in producing assessable income at the time the expense is incurred. That is,lawfully able to be occupied and leased or available for lease. Therefore, holding costs associated with the vacant land are not deductible until the new dwelling can be lawfully occupied and is available for lease. The vacant land rules are operative from the time the tenants leave the initial rental property. Costs of repairs, renovation or construction of a structure on the land are not costs related to the holding of vacant land. Where section 26-102 (ITAA 1997) prevents a deduction for holding costs, the expense may form part of the third element costs of owning the asset. The operation of section 26-102 and paragraph 14 of Taxation Ruling TR 2023/3 Income tax: expenses associated with holding vacant land means that your intention to use the property to derive rental income is no longer sufficient by itself to claim a deduction for expenses where no income can be derived because the property is either not able to be occupied or not available for rent. Subsection 26-102(6) provides that deductions for vacant land can still be claimed if there are exceptional circumstances. An exemption may apply where an exceptional circumstance outside your control occurs that results in the substantial and permanent structure no longer being on your land or the structure being disregarded. This could occur by way of natural disaster, a building fire, or the discovery of asbestos. If the substantial and permanent structure was residential premises, then the residence must have been lawfully able to be occupied and have been either leased or available for lease prior to the exceptional circumstance. From the time the tenant(s) vacate the property and demolition, neither you nor any other party must not have used the property for any purpose. In your case, a substantial and permanent structure existed on the land (the Property) which was used to gain assessable income before it was destroyed by the fire. Your intentions during the period the property was destroyed by fire and up to and after the process of being rebuilt is to continue to use the property to produce assessable income. The Commissioner accepts that the event (the fire) was an exceptional circumstance and beyond your control, therefore, the holding costs associated with the vacant land will be deductible beyond the third anniversary date the residential structure was used as a rental property before it was damaged by the event.

Question: Will the Commissioner allow you to deduct holding costs for vacant land beyond the third anniversary of the date that the residential structure was used as a rental property was damaged by fire as provided in section 26-102(6)(d)(ii) of the Income Tax Assessment Act 1997 (ITAA 1997)?