Deductions : deductibility of land tax paid on property no longer producing income

Whether a claim for land tax under section 8-1 of the Income Tax Assessment Act 1997 can be apportioned if a property ceases to be income producing part way through the year.

No. A claim for land tax is fully deductible notwithstanding the later conversion of the property to a non-income producing purpose.

As a result of the income producing use to which a land owner has put his property he receives a land tax assessment. Later in the same financial year the land owner either sells the property or uses it as his residence.

An outgoing for land tax is deductible to the extent that it is incurred in gaining or producing assessable income.

A land owner becomes liable to land tax for the period commencing either 1 January or 1 July (depending on the particular state legislation) if, at a certain point in time (either 31 December or 30 June), he or she satisfies the conditions for its imposition, for example, if the property is being used for income producing purposes. Where a land owner is under an obligation at the start of the land tax financial year to pay land tax because the property is used for income-producing purposes, there will be a sufficient nexus between the outgoing and the production of assessable income for the outgoing to be deductible.

If later in the year, after incurring the expense, the property is sold or it becomes the land owner's residence, there is no requirement to apportion the claim for a deduction for the expense incurred.. The land tax was incurred solely for an income producing purpose because the liability for it was founded in the property's use for income-producing purposes.

In the event of the property being sold and there being an adjustment of the land tax an assessable recoupment will arise for the vendor in accordance with Subdivision 20-A of the Income Tax Assessment Act 1997.