In a recent blog post, the SMSF service provider’s executive manager of SMSF technical and private wealth, Graeme Colley, said the laws, which passed parliament in October, would likely see SMSFs that had purchased land for development purposes denied deductions on their holding costs until construction was completed.
“If land that is vacant includes residential premises, a deduction for expenses will not be deductible until the premises are leased, hired, licensed or made available for these purposes,” Mr Colley said.
“These rules may apply to deny SMSFs a tax deduction for holding costs where the fund purchases a block of land on which a building is intended to be constructed.”
Mr Colley said costs commonly incurred in this scenario included borrowing costs, interests incurred for loans to acquire the land, land taxes, council rates and the costs of maintaining the land.
He gave the example of the Stuart Superannuation Fund, which purchased a block of land on 31 August 2019 on which to construct a residential property. The property is completed and advertised for rent in November 2019.
This meant that the holding costs incurred by the fund would only be deductible from November, when the property was available for tenants.
More generally, Mr Colley said, “it is recommended that if an SMSF holds vacant land that tax advice be obtained to determine the extent to which any expenses are tax-deductible to the SMSF”.