Vacant Land | when can holding costs be claimed?

As seen in Woopi News July 2025

Since 1st July 2019, a deduction for holding costs relating to vacant land can no longer be claimed as a tax deduction. This applies even if the land is intended for investment purposes in the future, costs must be capitalised and included as part of the cost base when the property is sold. Holding costs include loan interest, council rates, land tax and other maintenance or improvements such as lawn mowing or fencing.

Land is considered vacant if:

• It did not contain a substantial and permanent structure, or
• It contains a structure, but the structure is still being constructed or substantially renovated, and the premises are not yet lawfully able to be occupied or available for rent.

This means if you purchase land to build an investment property; land holding costs, are not deductible whilst the building is being constructed, these would be capitalised until the property is sold. However, interest on a separate construction loan would be deductible as its not considered a cost of holding vacant land.

If substantial renovations to an investment property take place, rendering the building uninhabitable for a period, the property will be deemed vacant land and no holding deductions will be available, these costs will be capitalised until sold.

An exception applies where the land is used in carrying on a business and a substantial structure isn’t required. Ie parking lot or car yard, primary production, or leased land.

Deductions for vacant land may still be claimed in exceptional circumstances where circumstances out of your control result in the permanent structure no longer being habitable for example:

• A natural disaster such as flood or fire
• A major building fire
• Substantial building defects where it can no longer be lawfully occupied

Holding costs that are not eligible for a deduction in the year they are incurred may be included as a part of the cost base of the asset when it is sold, reducing the amount of the taxable capital gain.