ATO Tax Rulings may be challenged

CityScape01-BlueInterpretations of ATO Tax Rulings may be challenged.  Here is an article by Max Newnham about a case study on the future intentions of a client and how the capital gains tax treatment would apply.

The details in this case study are that the client’s intention was to buy, develop and sell properties for a profit.  The client had initially purchased the property as a partnership, and then later sub-divided the property.

The initial opinion was that all of the gain on the first investment was assessable as business income and the general 50 per cent capital gains tax discount did not apply.

However, upon review the senior accountant contacted the ATO, and the response was: “While a property may have been used privately or as an investment, once a taxpayer decides to use it in a way that might be the same as a property developer, then it can become a ‘commercial transaction’ made with a view to realise a profit from sale, rather than simply a realisation of a property that is no longer needed”.

Without generalising, as the facts of each case play a major role in determining how the gain on the subdivided property is treated, but where a taxpayer only maximises their gain from a property that had previously been held as an investment or a residence, the author is of the opinion that it should be treated as a capital gain and challenged if the ATO believes it is business income.  That is, the general 50 per cent capital gains tax discount would apply.

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