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Is the taxpayer able to claim a deduction for rates and fencing expenses incurred on non-income producing land under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

No. The taxpayer is not able to claim a deduction for rates and fencing expenses incurred on non-income producing land under section 8-1 of the ITAA 1997.

The taxpayer owns vacant land that is non-income producing.

The taxpayer incurred rates and fencing expenses.

The land is for sale.

Section 8-1 of the ITAA 1997 allows a deduction for all losses or outgoing to the extent to which they are incurred in the gaining or producing of assessable income except where the outgoings are of a capital, private or domestic nature.

There must be a nexus between the outgoing and the assessable income so that the outgoing is incidental and relevant to the gaining of assessable income. As the taxpayer is not currently earning assessable income from the land, the expenses incurred for rates and fencing are not deductible under section 8-1 of the ITAA 1997. Note: if the sale of the land gives rise to capital gains tax obligations under Part 3-1 of the ITAA 1997, the expenses incurred for rates and fencing may be included in the cost base of the land for capital gains tax purposes to calculate the capital gain or loss arising on disposal of the land.