Buying a Block?
If you buy a block of land with the intention of building a rental property on it, you can claim tax deductions for expenses associated with owning the land, including interest on your loan and council rates.
The Tax Office requires that, to be entitled to these deductions, you must build the dwelling in a reasonable period of time and make it available as soon as the building is completed. The Tax Office does not provide a specific number of years in defining reasonable period of time.
If you buy vacant land, or acquire it by other means such as inheritance from a deceased estate, it is usually considered a capital asset. When you sell the land you will need to work out you capital gain or capital loss. If it is capital gain you are liable to pay tax.
The amount of tax payable will depend on how much other income you have in the year you sell the land. You should keep records of the date and cost of obtaining the land, and the expenses you incur in owing it such as interest on your loan and council rates.
These expenses, which you have not been able to claim as tax deductions, can be added to the capital cost of the land to work out you capital gain or capital loss when you sell the land.