Property Investment vs Property Development

When does your investment property become a “development”?

Factors to consider when determining whether you are a developer or an investor:

• Do you, or entities connected with you, have a history of buying and selling property?
• Was your intention upon purchase to build/renovate and sell, or hold the property?
• What is the nature and scope of work performed on the property prior to sale?
• Is the activity organised and carried on in a business-like manner?
• How much has been expended leading up to the sale of the property?
• Is there a joint venture?

What are the implications?

Income Tax

If the sale of a property is simply the realisation of a capital asset, it will result in a capital gain or loss. Capital gains may be eligible for the 50% general discount if held for over 12 months, and may be eligible for further small business CGT concessions if other criteria are met. Conversely, if the sale is made in the course of your property development business, the profit will be taxed at your marginal rate.

GST

If a property investor is not registered for GST, the sale of their investment property will usually be exempt from GST, even if the sale price exceeds the GST turnover threshold. Developers will generally be liable for GST on the sale if the property is considered to be “new” or “substantially renovated”.

If you are considering a property purchase…

Property transactions can be complex, and are often a grey area. Even one-off transactions may be considered to be carrying on a business. Further to this, it is important to have the right structure in place to carry out the transaction and mitigate risk. We strongly recommend speaking to a trusted adviser prior to engaging in any property transactions.

For business advice that will prove valuable for your situation, please make sure you talk with us. Our team has a wealth of knowledge to get you on the right path and provides the ongoing support to keep you there.