Updated: Jul 25
Capital gains tax (CGT) can be a complex and confusing topic for many. It is essential to have a good grasp of the rules and regulations surrounding CGT, which commenced in September 1985. In this article, we will discuss an important aspect of CGT related to vacant land or holiday homes.
If you own a holiday house or vacant land acquired after 20 August 1991, all holding costs incurred can be capitalised and added to the cost base of the property thereby reducing the capital gain when you eventually sell the property. However, there is an important caveat to keep in mind. If you have claimed these holding costs as a tax deduction, you cannot add them to the cost base. Unfortunately if you bought the property before that date you cannot add holding costs to the cost base.
Record keeping is an important aspect of this as you need to keep records for 5 years after you sell the property.
Let's consider a scenario where you have used the holiday house for both private use and income-generating activities. In such cases, if you have not claimed a portion of the holding costs as a tax deduction, you can include these costs when calculating the cost base. This means that the expenses directly related to the property's ownership, maintenance and upkeep, such as interest on loans, rates, strata fees, and maintenance costs, can be capitalised.
It is important to note that not all expenses can be added to the cost base. For example, electricity costs incurred for the property cannot be included. Only the holding costs directly associated with the property's ownership and maintenance are eligible for capitalisation.
Given the complexity of CGT and the specific considerations for holiday homes and vacant land, it is strongly recommended that you consult with us so we can provide expert guidance tailored to your unique situation. We can help you navigate the intricacies of CGT, ensuring that you make informed decisions regarding your holiday property or vacant land.