Question

We have undertaken a multi-unit development. All but three (3) units were sold with the developer choosing to keep these and lease them out. We have a change in credible purpose and have started paying back the GST claimed on these properties. My question is do we have a taxing point now or deemed transfer of these properties from trading stock to capital assets?

Also, of the properties kept, two (2) are residential with one (1) being commercial.

Answer

If the properties were originally held as trading stock but are now held on capital account then this would trigger section 70-110 ITAA 1997.

When a taxpayer starts to hold an asset on capital account rather than as trading stock, they are deemed to have disposed of the asset for its cost and then bought it back for the same amount for CGT purposes. The taxpayer does not have the ability to choose for this deemed sale and re-acquisition to occur at market value or any other value.

As the asset would now be on capital account, timing for CGT discount purposes is relevant. The 12 month time period begins when the property ceases to be trading stock (refer sections 70-110 and 109-60 ITAA 1997).

The rules should be the same regardless of whether the properties are residential or commercial in nature.

Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.