1. Sale of a commercial rental property and post-cessation interest
New S.26-102(1)(b)(ii) potentially provides ongoing protection (i.e., after a property has been sold) for taxpayers who were able to avoid the operation of the new ‘vacant land’ provision while they held the property. This ‘post-cessation interest extension’ provides that:
(a) where a taxpayer has ceased to hold the relevant land; and
(b) it was not ‘vacant land’ for the purposes of S.26-102 immediately before they ceased to hold the land.
then deductions for ongoing post-cessation interest expenses (and any other holding costs) incurred would not be denied under the new ‘vacant land’ provisions.
Accordingly, any relevant ‘post-cessation’ holding costs for a commercial rental property would not be denied deductibility by S.26-102. This is, of course, assuming an eligible substantial and permanent structure was “in use, or available for use” just before the taxpayer ceased to hold the land. This should be the case whether the property was rented or available for rent at the time, or otherwise untenanted yet capable of being used or occupied and the requirements in TR 2004/4 are otherwise satisfied. Refer also to paragraph 3.26 of the EM.
EXAMPLE – Post-cessation interest for commercial property
Liv owns a commercial factory which she purchased (using borrowed funds) for $450,000 and rented to a tenant. As a result of her impending divorce, Liv was forced to sell the property for $400,000 only 12 months later. Following the application of the sale proceeds against the outstanding loan, Liv had a loan shortfall of just under $50,000 and will incur ongoing interest. Assuming she continues to satisfy the requirements in TR 2004/4, Liv can claim a deduction for any ongoing post-cessation interest on the basis that S.26-102 will have no application. This is because just before she ceased to hold the commercial rental property there was an eligible substantial and permanent structure “in use or available for use” on the land (i.e., the commercial rental property).
Could Liv still claim post-cessation interest if the commercial property was not tenanted when she listed the property for sale?
Yes. Even where the property was not rented (or available for rent), it would be argued that the commercial property still had an eligible substantial and permanent structure that was “in use or available for use” on the land just before the time Liv ceased to hold the land (i.e., assuming the property was capable of being used or occupied at the time).
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- TAX TREATMENT OF HOLDING COSTS FOLLOWING DISPOSAL OF A RENTAL PROPERTY: POST-CESSATION INTEREST (1)
- TAX TREATMENT ON HOLDING COSTS INCURRED PRIOR TO AND DURING CONSTRUCTION OF A RENTAL PROPERTY
- TOPICS ON HOLDING COSTS FOR ‘VACANT LAND’: S.26-102 ‘NEW’ RESIDENTIAL PREMISES
- TOPICS ON HOLDING COSTS FOR ‘VACANT LAND’: S.26-102 DENIED DEDUCTION
- WHEN WILL LAND BE CONSIDERED ‘VACANT LAND’? (1)
- WHEN WILL LAND BE CONSIDERED 'VACANT LAND'? (2)
