A recent case before the Administrative Appeals Tribunal (WWXY v FCT [2015] AATA 130) raises a matter that anyone who proposes to develop land should consider.
In the WWXY case a proposed JV development was planned. The Trust owned two adjoining lots acquired to develop with a neighbouring large scale developer. However plans and discussions broke down and the JV didn't progress. So the Trust rented the properties out.
Q : So how is the profit taxed ? CGT or Ordinary Income ?
The ATO private Ruling said its not a mere-realisation of a CGT asset. They claimed the eventual sale was the end result of a commercial development.
The AAT agreed. They considered the intent at the outset established a commercial enterprise. The AAT member also said that even if he had agreed that the taxpayer wasn't in business he would still have found the intent was profit-making from the outset.
Unfortunately for the Trust the land never became trading stock as the business activity did not commence.
Just because a trust was established doesnt give individual taxpayers protection from this view about a commercial operation. This decision is NOT about a trust. The ATO generally look at documents between parties to the activity incl emails etc, finance applications, accountants advice even, local govt applications and approvals, real estate agents, brokers etc.
In the WWXY case a proposed JV development was planned. The Trust owned two adjoining lots acquired to develop with a neighbouring large scale developer. However plans and discussions broke down and the JV didn't progress. So the Trust rented the properties out.
Q : So how is the profit taxed ? CGT or Ordinary Income ?
The ATO private Ruling said its not a mere-realisation of a CGT asset. They claimed the eventual sale was the end result of a commercial development.
The AAT agreed. They considered the intent at the outset established a commercial enterprise. The AAT member also said that even if he had agreed that the taxpayer wasn't in business he would still have found the intent was profit-making from the outset.
Unfortunately for the Trust the land never became trading stock as the business activity did not commence.
Just because a trust was established doesnt give individual taxpayers protection from this view about a commercial operation. This decision is NOT about a trust. The ATO generally look at documents between parties to the activity incl emails etc, finance applications, accountants advice even, local govt applications and approvals, real estate agents, brokers etc.