An Interpretation Statement released by IRD discusses holding costs on land.
What are holding costs?
Holding costs are those expenses that are incurred in relation to the ownership of land. This includes interest, rates and property insurance. Holding costs do not include capital improvement costs or expenses that relate to the use of the property.
Key Points
The statement is quite long and technical, but we have highlighted the key points below:
- Holding costs do not form part of the price of land but capital costs may form part of the cost.
- If the land has been acquired with the purpose of resale, so it is held on the revenue account, holding costs will be deductible. The extent of deductibility of holding costs will be dependent on whether the property is also used privately. If there is also private use, the mixed asset rules may apply and otherwise apportionment will be required.
- If the land has been acquired to derive an income (e.g., it has been put on rent, then the property is held on the capital account. It will be subject to the interest limitation and ring-fencing rules and deductible. If there is private use, apportionment will be required for the deductions.
- If land is held on a capital account and used privately, deductions cannot be claimed for holding costs if you are caught under the bright line test.
Tax rules related to land are quite complex and for further advice regarding your specific issue, get in touch with us below.
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