The Block Was an Investment Until the Bulldozer Arrived

Land may begin as a home, farm, rental property or passive investment and end as twelve lots and a display suite. Somewhere between the two, the tax character can change. Unfortunately, the change does not wait for the ribbon-cutting ceremony.

Capital account is not inherited forever

The sale of an investment asset may be dealt with under the capital gains tax rules. Profit from a business operation or commercial profit-making scheme may instead be ordinary income. Purpose at acquisition is important but not conclusive; later decisions, scale, finance, development work, professional organisation and repetition can alter the character.

Record the turning point

If land is committed to a development venture, identify when, why and at what market value. Keep feasibility studies, finance proposals, planning applications, board minutes, valuations and contracts. These documents can be more persuasive than a later recollection that the owner merely tidied up the backyard.

GST runs on a separate track

Sales made in the course of an enterprise may be taxable supplies. Registration, input tax credits, going-concern treatment and the margin scheme require early attention. Contract wording and valuations can materially affect the result, and GST mistakes are difficult to repair after settlement.

Entity choice and distributions

The choice between personal ownership, company, trust, joint venture and partnership affects income tax, asset protection, financing, land tax, duty, GST and how profits can be extracted. In Western Australia, duty and land-tax consequences must be modelled alongside federal taxes.

Plan before the first irreversible step

Obtain advice before options are granted, entities inserted, land transferred or development agreements signed. A private ruling may be useful where the facts are sufficiently developed and the revenue-versus-capital character remains genuinely uncertain.