Understanding the ATO's Guidance on Vacant Land Expenses: TR 2023/3

In: Land Tax

In the ever-evolving world of taxation, staying informed about the latest updates and rulings is crucial for individuals and businesses alike. The Australian Taxation Office (ATO) has recently provided clarity on the application of vacant land provisions in section 26-102 of the Income Tax Assessment Act 1997 (ITAA 1997). This development comes in the form of Taxation Ruling TR 2023/3, shedding light on various aspects of this provision and its implications.

What Is Section 26-102?

Section 26-102 of the ITAA 1997 holds significant relevance for those dealing with vacant land. In essence, it denies deductions for losses or outgoings associated with holding land on which there is no substantial and permanent structure in use or available for use. This ruling aims to ensure that taxpayers cannot claim expenses related to land that lacks substantial development or active use.

The Scope of TR 2023/3

Taxation Ruling TR 2023/3 outlines the Commissioner's perspective on the application of sections 26-102 and provides insights into specific exclusions. Here are some key aspects covered in this ruling:

  1. Newly-Constructed Properties Temporarily Unavailable: The ruling offers practical compliance approaches for properties that have been newly constructed but are temporarily unavailable for use.

  2. Business Use of Land: It addresses the determination of whether a lessee is using land to carry on a business, a factor that can impact the applicability of section 26-102.

  3. Interest Expenses and Vacant Land Before Sale: Guidance is provided on how interest expenses should be treated in cases where land is vacant immediately before sale.

  4. Mixed Uses of Vacant Land: The ruling clarifies circumstances where vacant land has mixed uses, helping taxpayers navigate complex scenarios.

  5. Land Held by Primary Producers: Specific provisions are discussed for land held by primary producers.

  6. Determining the Relevant Area of Land: The loss or outgoing will determine the area of land relevant to section 26-102. The ruling addresses situations where land is held under multiple titles.

A Change from Draft TR 2021/D5

It's worth noting that this finalised ruling builds upon the draft Taxation Ruling TR 2021/D5. One significant change is in the determination of whether land under each title is vacant when land is held under multiple titles. The Commissioner's preliminary view in the draft was that each title had to be individually assessed, but TR 2023/3 now states that it is sufficient for a substantial and permanent structure to exist somewhere on the area of land to which the loss or outgoing relates.

Effective Date and Impact

Taxation Ruling TR 2023/3 is effective from 1 July 2019, which aligns with the application date of section 26-102. Notably, the ruling suggests that the views regarding the relevant area of land may be more favourable to some taxpayers compared to the approach in the draft TR 2021/D5. Those affected by this change are encouraged to contact the ATO to understand how it impacts their specific circumstances.

Additional Resources

For those interested in diving deeper into the topic, the ATO has published a compendium of the feedback it received, providing further insights and perspectives.

Stay informed and ensure compliance with the latest taxation regulations. Taxation Ruling TR 2023/3 is a valuable resource for individuals and businesses dealing with vacant land, offering clarity on deductions and expenses associated with such holdings.

Source: Taxation Ruling TR 2023/3, ATO website, 27 September 2023, accessed 27 September 2023.

Remember that it's essential to consult with tax professionals for personalized advice and guidance related to your specific tax situation.


Got questions? Reach out to Tax Ideas Accountants & Advisers at +61 2 83181545 or book an appointment on our live calendar.


Tags: Land Tax

Written by Ideas Group

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