Interest on the land is denied. Interest on the construction is not. If the bank has written one loan, someone has to do the sums.
With negative gearing now quarantined for established dwellings, new house and land has become the sensible play for investors. The numbers stack up. But there is a trap in the first eighteen months that costs people real money, and it comes down to how the bank set up the finance.
The vacant land rules deny deductions for the costs of holding land where there is no completed, usable structure on it. Interest on the money you borrowed to buy the block, council rates, land tax — all switched off. Starting the build does not turn them back on. They stay off until the house can lawfully be occupied and is rented or genuinely available for rent.
The Tax Office accepts that borrowing costs associated with constructing the house are not costs of holding the land. So the interest on your construction drawdowns is deductible while the house is going up, subject to the ordinary rules about borrowing for an income-producing purpose.
That is a meaningful deduction during a period when you have no rent coming in.
The difficulty is that most lenders write a single facility covering both the land and the progress payments. When that happens, the interest has to be apportioned between the land component and the construction component on a fair and reasonable basis, worked out drawdown by drawdown as the build progresses. It can be done, and we do it, but it takes time, it relies on complete loan statements, and it is the sort of calculation that invites questions.
Two separate facilities remove the problem entirely. A land loan and a construction loan give you a clean, self-evident split with nothing to argue about.
Interest denied on the land can generally be added to the property's cost base and reduce a future capital gain, though it only works against a gain and cannot be used to create a loss.
One more point worth raising with us early: these rules do not apply to land held by companies, or where the land is used in carrying on a business. Ownership structure changes the answer before the finance does.
Talk to us before the loan documents are signed. Two facilities instead of one costs you nothing at the application stage, and it is expensive to fix afterwards.
Falling behind on your BAS lodgements looks like an administrative problem. Left long enough, it becomes an expensive one, because the GST you collected stays payable indefinitely while the GST credits you are owed disappear after four years. Here is what that looks like in dollars.
When the draft legislation for the trust minimum tax was released, it came with a reassurance: if you do not want to restructure, you can simply make an election instead — no restructure, and no state stamp duty. That is accurate, but it is also a very small part of the decision. Here is why you should choose your structure for the eventual sale of your business, not for the announcement.
Treasury has released the draft legislation for the new 30% minimum tax on family trusts. From 1 July 2028, income earned by a family trust will carry a minimum tax of 30 per cent, paid by the trustee. Here is what it says in plain terms, what is not caught, and why the decisions worth making need to happen well before 2028.
