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Property Development and Tax

2nd December 2019

Property Development and Tax!

The ATO seems to be always looking over the shoulder of property developers to make sure they are complying with their tax obligations.  It should be noted here that “property developers” can be anyone building 2 or more units for re-sale.The considerations facing the ATO are many and varied, but caninclude topics such as whether an agreement to develop and sell land is a “mere realisation” or a disposal either in the course of abusiness or as part of a profit making undertaking or plan.

A “mere realisation” is a sale on capital account to which the capital gains tax (CGT) rules will generally apply. Landholders will usually seek this treatment if they can access CGT concessions (for example, applying the appropriate CGT discount or the small business CGT concessions) or the property is a pre-CGT asset. A sale that is more than a mere realisation will be on revenue account and the proceeds will generally be assessable as ordinary income.

The two most common scenarios where the proceeds are income are:

1. Where the land is sold in the course of a business or as an incident of business operations, or

2. Where the land has been acquired and sold as part of a profit making undertaking or scheme. Whether a sale is a mere realisation or something moreis determined by examining and weighing the facts and circumstances taken as a whole.

Ask us for links to the above should you want to read more. Some of the readings are very technical in nature.