Earlier this month, Inland Revenue released a second consulting document concerning the tax treatment of holding costs such as interest, rates and repairs and maintenance in relation to privately used land that is taxable on sale.

This applies to privately used land that is subject to income tax under the bright-line test or the various 10-year rules. Under the current rules, a deduction is disallowed for expenditure to the extent that the land is used privately. Some would say that this is already making sense. Why should the expenditure be deductible if it is relating to a person’s private use?

While the law is clear about the deductibility of holding costs where land is used either for income-earning purposes or private use, whether the holding costs relating to privately used/taxable land is deductible is a grey area.

The document seeks feedback on three possible solutions for the treatment of holding costs where land is privately used. The options include, apportioning the holding costs, allow all tax deductions or deny all deductions. The document also considers the correct treatment in relation to periods of vacancy (unused) and whether or not it should be treated as being used privately.

You have until the 1 November 2019 to put in your submissions.