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Trusts and property development

August 2014

The ATO has warned that trusts should not be used by taxpayers developing property to disguise receipts as capital gains.

The Australian Tax Office has released a taxpayer alert on the way that property development activities are being documented, in particular to arrangements where a trust is being used to undertake property development.

Its particular focus is on trusts that show profits are being returned as a capital gain rather than being shown as income on a revenue account.

The business of property development by any other name
The ATO's concern is that some taxpayers are using trusts to disguise profits as CGT when in fact they are undertaking the business of property development and applying the 50% CGT discount where the property has been held for more than 12 months. The CGT discount would not be available if the property is held on revenue account.

Proving your position
If you have intent to derive rental income for the foreseeable future from your property, rather than selling it for profit, then you will need to provide sufficient evidence to support your position. If your intent in developing the property is to sellit for profit, it can have a significantly different outcome and affect GST treatment of the arrangement.

What constitutes 'evidence'?
The sort of evidence the ATO will consider in these situations is the terms of any loan documents, correspondence with local government authorities and the engagement of real estate agents to try and sell the property soon after completion of the development

Get advice about your trust arrangements
As always, we recommend that you speak to your accountant to understand the tax implications of how you are developing, renting or selling investment property. Contact us on 02 9957 4033.

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Last updated 21 August 2014. This article is provided for information purposes only and should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.

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Disclaimer

This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.

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