Private ruling: Deductions - rental expenses
Date of advice: 23 January 2024
Published: 4 March 2024
Ruling period: Year ended 30 June 20XX | Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Does the exception in Subsection 26-102(9) of the Income Tax Assessment Act 1997 (ITAA 1997) apply in relation to the deductibility of holding costs on vacant land? | A1: Yes. | Q2: Are the holding costs of the vacant land wholly deductible for the period XX XX 20XX to XX XX 20XX? | A2: Yes. | Q3: If not, what is the appropriate method of apportionment? | A3: This question is not required. The Commissioner is satisfied that the holding costs on your vacant land are wholly deductible, and the exception in Subsection 26-102(9) of the ITAA 1997 is applicable to the facts and circumstances of your scheme.

Relevant facts and circumstances: In XX 20XX, you, being Person A and Person B, moved out of your main residence (the Property) In XX 20XX, you demolished the dwelling at the Property to start planning for construction of a new home. You engaged consultants, architects, and builders. You submitted council applications in relation to the construction of a new home. On XX XX 20XX, you were approached by an unrelated, third-party property developer (the Lessee). The Lessee was undertaking a building project adjacent to the Property. The Lessee asked if you would consider renting the Property for a temporary period. The Lessee held an active Australian Business Number (ABN). The Lessee was registered for Goods and Services Tax (GST). The Lessee advised that they wanted to use the vacant land on the Property as a carpark, and as a place to accommodate their equipment, including: • a port-a-loo • building materials, and • excavators The terms and conditions of the lease were negotiated in writing, via email, and evidence shows: • the Lessee is an unrelated third party • you addressed any concerns surrounding assets protection with your local Council prior to agreeing to lease the vacant land • an agreement was reached to rent at a fair and reasonable market rate • the agreed actions the Lessee will take to establish temporary structures to secure their equipment whilst it was stored on the Property You did not prepare a formal lease agreement. The rent payments were $XXX per week. Your intended construction of a new home did not occur due to higher than anticipated build costs. On approximately XX XX 20XX, the Lessee took control of the vacant land on the Property. On approximately XX XX 20XX, the Lessee erected a fence. On approximately XX XX 20XX, the Lessee commenced making cash payments to rent the vacant land on the Property. On approximately XX XX 20XX, the Lessee ceased making cash payments to rent the vacant land on the Property. The property was used to produce assessable income for the period XX XX 20XX to XX XX 20XX. In XX 20XX, and at the cessation of the lease agreement that you held with the Lessee to rent the vacant land, you sold the Property.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 26-102(9)