Land banking is firmly in the sights on the federal government after the 2018 Federal Budget, after it was announced that tax incentives for vacant land expenses would be removed. However, there are concerns that future developments could be negatively impacted by the changes.

The Government will deny tax deductions for costs associated with holding vacant land from July 2019, in an effort to curb land banking and further increase the supply of land to the market. The integrity measure will address concerns property owners are improperly claiming deductions for expenses, such as interest costs, for land they never intend to earn an income from.  

Under the current policy, vacant land owners are able to claim deductions for land that may never generate income, while banking the land with the hopes of selling in the future as the property’s value increases.The measure would not apply to land owned to carry out a business, including a business of primary production.

When viewing this policy through the lense of increasing supply, the benefits are easily identified. However, developer are wary that there may be unintended consequences according to Urban Development Institute of Australia’s national executive director, Kirk Coningham, who spoke with Domain.com.

“I think one of the key issues is that it applies to land where approvals for development are being sought, so the land holder could be penalised for a lack of speed in the process,” Mr Coningham said.

“We know that it can take seven to ten years to bring house and land packages to the market in Sydney, so to be punished for the slow processing would be one big concern we would have.”

Business and Financial Advisors HLB Mann Judd have said that “informal clarification” has been received that “property development companies that have an operating business on the land should not be impacted by these measures.” However as is always the case with budget policy announcements, the political winds may blow in a different direction in the future, which could affect how this policy unfolds.

Watch this space developers.