These regulations are contained under s 26-102 of the Income Tax Assessment Act 1997 (ITAA 1997), but Butler said there are a few exemptions, including a company, an entity carrying on a business in which the land is used for the conduct of that business, land held by primary producers, and a superannuation fund, but not an SMSF.

“Landholder costs include rates, taxes in interest incurred on holding the land, but it does not include the cost of borrowing, interest cost for the purpose of construction, repairs or renovations,” he said.

“Per Tax Ruling 2023/3 – [26] you can have a spouse, a child or an affiliate, or a person connected with you who could conduct a business [on the vacant land] and that should be OK, but that also means the land won’t be vacant if it’s leased to those people. This exception does not apply, however, where the land contains residential premises or under which a residential premises is being constructed.”

Butler added that it is also important to be aware that any interest or ongoing borrowing costs to acquire land are included as a cost of holding land.

“Other costs such as council rates, land tax and maintenance costs could also be included in the cost base of the land. So, when you go to calculate your capital gains tax down the track, your cost base can include these types of costs that are not deductible,” he said.

“It’s important to consider whether they do form part of the third element of the cost base of owning the property. The difficulty is with some of these costs, particularly council rates, land tax and maintenance, they will be added to your cost base. If you have a capital gain, however, they will not give you a greater loss.”

In other words, he said, if you have a capital loss, it won’t increase your loss, but it will reduce your potential gain.

Another thing to be aware of regarding property investment is that travel allowance is no longer allowed to be claimed as a deduction.

Prior to 1 July 2017, property owners could claim travel expenses relating to their residential rental property and didn’t have to include them in the cost base or reduced cost base when calculating any capital gain or capital loss when they sold the property.

“In July 2017, the government cut out travel expenses and now no longer gives a travel claim for residential rental,” he said.

“That denial does not apply if you’re in the business of lending properties or it’s an excluded entity under 26-31 of the ITAA 1997. However, travel expenses for SMSF rental properties were generally considered questionable in any event.”