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TAX FILES No deductions for vacant land PAUL TANTI, PARTNER, THOMSONS GREER The Federal Government has introduced a bill which denies tax deductions for some taxpayers who own vacant land. Treasury Laws Amendment (2019 Tax Integrity and Other Measures No. 1) Bill 2019 (Bill) was introduced into Parliament on 24 July, 2019. If passed in its current form, the new measures will apply from 1 July, 2019, regardless of when taxpayers acquired the land. The Bill denies some taxpayers deductions for the cost of holding vacant land. These costs will include interest, other borrowing costs and other holding costs such as rates and taxes. The Explanatory Memorandum to the Bill states that the purpose of the new measures is to deny “taxpayers who have been claiming deductions for the costs associated with holding vacant land when it is not genuinely held for the purpose of gaining or producing assessable income” (EM paragraph 3.4). The Bill does not apply to all taxpayers. Those taxpayers which are exempt are: • corporate entities; • superannuation funds which are not self-managed superannuation funds; • managed investment trusts; and • public unit trusts. Therefore, the provisions effectively apply to individuals, self-managed superannuation funds and closely held trusts (both discretionary trusts and unit trusts). These entities will be subject to the new provisions even if they have a corporate trustee, Proposed section 26-102 will deny losses or outgoings relating to holding land if “there is no substantial and permanent structure in use or available for use on the land, having a purpose that is independent of, and not incidental to, the purpose of any other structure or proposed structure”. If this provision denies the taxpayer a deduction, the deductions will only be available to the extent that the land is in use or available for use in carrying on a business conducted by the taxpayer, persons related to the taxpayer or an entity that is connected with the taxpayer. For these purposes, related persons include affiliates of the taxpayer, the spouse of the taxpayer and any of the taxpayer’s children who are under the age of 18. 38 THE BULLETIN September 2019 The “affiliate” and “connected with” provisions are similar to those which are contained in the active asset requirement in the Capital Gains Tax Small Business Concessions. The new provisions apply to land on a “Certificate of Title basis”. Therefore, land comprised in one title may meet the requirements whereas an adjoining property, which is intended for the same use but may not contain a substantial and permanent structure, may result in deductions being denied for that property. For example, if a house is situated on one title and a shed or garage is being constructed on an adjoining title, the land on which the shed or garage is situated will not satisfy the “independent purpose” requirement. Garages and sheds and the like do not have an independent purpose, but rather have a purpose which is incidental to or related to the residential premises (EM paragraph 3.23). If the buildings on the land are residential premises which are being constructed or substantially renovated, deductions will not be allowed until the premises are available for use. This means they must be lawfully able to be occupied and are actually leased, hired or licenced or available for lease, hire or licence. This will effectively deny deductions during the planning, construction and renovation phases of building or renovating residential premises. The buildings on the land must be substantial. The term “substantial” refers not only to the size of the structure but can also include value or some other criteria of importance to the relevant property (EM paragraph 3.18). The substantial characteristic must be a feature of the building on the land and not of another structure which is situated on other land. If deductions are denied for a particular property on the basis there is no substantial and permanent structure in use or available for use on the land with an independent purpose, deductions will only be available to the extent the land is in use or available for use in carrying on a business. Whether a business is being carried on will always be a question of fact. In determining this issue, the treatment of the land for other tax purposes will be relevant. Therefore, the taxpayer’s treatment of the gains from the proposed property as income or capital, its registration for GST purposes and whether it considers itself to be carrying on a business will all be relevant to the question of whether the taxpayer (or its affiliates or connected entities) is carrying on a business. Taxpayers who are subject to these provisions should review their landholdings to ensure that, to the extent possible, they satisfy the requirements for deductibility for holding costs in the 2020 financial year. B
WELLBEING & SUPPORT Breaking the stress cycle TONI VOZZO, CHAIR, WELLBEING & RESILIENCE COMMITTEE At its core, “legal work is mental work” 1 . Good mental health is therefore an essential part of lawyering as it affects a lawyer’s ability to be productive and make responsible decisions for their clients. It is part of a lawyer’s ethical duty of competence. Studies suggest that having at least two weeks off and taking two good breaks a year is optimal for breaking the stress cycle. In 2009, Canadian researchers reported that taking vacations helped to buffer the detrimental effects of excessive job demands among a sample of almost 900 law firm lawyers renowned for working in highly stressful work settings. They also found that participating in active and social leisure activities or taking a vacation are important in reducing the prevalence of depression. 2 Yet for many lawyers it can seem difficult to get away, to leave the team and your matters behind. “Vacations have the potential to break into the stress cycle. We emerge from a successful vacation feeling ready to take on the world again. We gain perspective on our problems, get to relax with our families and friends, and get a break from our usual routines.” 3 (Added emphasis.) I was fortunate to escape the miserable cold winter to spend two weeks this July on Rhodes, the largest of Greece’s Dodecanese islands. Rhodes is known for its spectacular beaches, ancient ruins and medieval Old Town. Was it a successful vacation? Ναί (actually means “yes” in Greek). I emerged from the vacation in a positive state of wellness, slightly heavier and suntanned with lots of photos of great scenery and capturing good times. I did a number of my favourite things: I spent quality time with family and friends; I walked around a foreign city and immersed myself in the culture and history; I ate good food (I consumed calamari many ways including grilled, stuffed, fried and crumbed…all delicious); I shopped ‘til I dropped; I swam in the clear, calm and warm Aegean; I read fiction. I generally did nothing that required much brain power. I re-energised. But like many lawyers on vacation, I continued to closely monitor what was happening on my matters on the other side of the world. I did not completely disconnect. How could I? My two children were more than 13,000 kilometres away so I was therefore always going to have my iPhone close to hand. But apart from the kids, I intended to monitor my work emails because despite my best efforts to plan and put in place appropriate arrangements to deal with my matters during the vacation, things just happen beyond my control – Judges seem to have a sixth sense for when solicitors go on leave and relist cases unexpectedly! To be clear, I had no intention of spending any substantive time reading or replying to emails. I also limited the time I spent checking emails – being in a different time zone where half the Australian working day is over before you wake up helps too! I did NOT feel guilty about “monitoring” my work emails. Some people can turn off the mobile data and suspend all contact with work. I’m just not one of those people. Knowing what was happening (at a high level) allowed me to relax and enjoy the down time. Nevertheless, when you take a decent break from your usual routines, whether it’s somewhere as beautiful as Rhodes, closer to home, or even at home, it can make a positive difference to your state of wellbeing. So if you want to be a better lawyer, do things that you enjoy. Spend time with your friends and family, get away from the office, and don’t feel guilty for taking regular vacations or staycations. It’s ok to check emails, but try limiting this to a short time during the day that fits in with your holiday plans or routines. Endnotes 1 Taking a Summer Vacation Will Make You a Better Lawyer (Yes, Really) by Allison Wolf http://www. slaw.ca/2011/08/03/taking-a-summer-vacationwill-make-you-a-better-lawyer-yes-really/ 2 Joudrey A, Wallace JE: Leisure as a coping resource: a test of the job demand- control -support model. Hum Relat. 2009 3 https://www.psychologytoday.com/au/blog/ fulfillment-any-age/201006/the-importancevacations-our-physical-and-mental-health Forensic Services Clifton Hall provides expert assistance across commercial, personal injury, matrimonial, insurance, taxation and workplace disputes. Our services include: • Quantification of economic loss • Business and equity valuations • Financial reconstruction and asset tracing • IT forensics • Fraud investigations • Insolvency analysis Our highly experienced and qualified forensic team has written close to 1,000 expert reports and successfully provided expert witness evidence in numerous courts. Contact Tim Clifton, Ian Wigg or Simon Miller to discuss any issue on a no obligation basis. INSOLVENCY • FORENSICS • ADVISORY Level 3 431 King William Street Adelaide SA 5000 t. 08 7202 1800 e. info@cliftonhall.net.au w. www.cliftonhall.net.au
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