When a farmer becomes a property developer – tax and GST implications of land subdivision

Regional Masterclass

The Tax Institute

Introduction

Over the course of ownership of a property, its use or intention for use can change, and depending on what that change is, there can be significant income tax implications that need to be addressed. This paper looks at some of those changes and the tax consequences that can follow, including:

1. a review of the relevant principles on capital and revenue from case law;

2. a review of Australian Taxation Office (ATO) guidance material; and

3. changing a main residence’s use to income producing

The rest of this paper explores the typical GST considerations which arise in these property development scenarios, with practical examples for illustrative purposes including:

• an overview of GST and property developments;

• the importance of distinguishing between commercial intent and private family arrangements (Lance V FCT (Taxation) [2024] AATA 11 (Lance));

• how do property sale proceeds impact on the GST turnover test when determining if GST registration is required? (Collins and Anor as trustee for The Collins Retirement Fund v FCT [2022] AATA 628 (Collins)); and

• a summary of recent ATO website guidance and views:

  • tax consequences on sales of property; and

  • examples of tax consequences on sales of land including small-scale land subdivision.

Unless stated otherwise, in this paper references are to the Income Tax Assessment Act 1936 (ITAA 1936), the Income Tax Assessment Act 1997 (ITAA 1997), of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

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