Ask Ban Tacs Question
Husband and wife partnership did residential land subdivision development in two stages over several years. Partnership had ABN & GST registration. Majority of lots sold via Real Estate Agents.
2 vacant lots are to be kept for future investment.
Partnership not doing any further business, as all stages sold.
Now GST registration due to be cancelled, as no/little turnover.
How do I change vacant land from being taxable on revenue account to qualify for the CGT discount ?
Can I……. sell land now to ourselves as ‘husband and wife’, at cost price plus GST. Then the purchase price will become base cost for CGT purposes ?
Then cancel the GST registration.
I know (now) it was wrong to place development in husband and wife names, future projects, if any, will be in a Trust name.
Answer
I have included below the section that I refer to because you may need to use it. You see until this section was included in the legislation, an item of trading stock was always considered trading stock no matter how long you held it, its character could never change. There are so many precedents still around that back date to before this legislation that many people don’t realize it is no longer the case.
All you have to do is simply stop holding it as trading stock and it will be considered to have been acquired by you at that time for its cost. There is a ruling about the GST consequences of a partnership making a supply to its partners but in this case the item is not actually changing hands it is changing purpose. The change of purpose will mean you have to pay back some GST input credits. De registering for GST would also trigger this same paying back of GST credits (section 138). What you will need to do is go through all the costs associated with those 2 lots, that are more than $1,000, then if their adjustment period has not expired you will need to pay back the GST. Invoices for $1,001 to $5,000 have two adjustment periods. So their adjustment period does not expire until two years after the first 30th June after the BAS in which the GST was claimed. Invoices for $5,001 to $499,999 have 5 adjustment periods. Of course the amount of GST you pay back will increase the cost of the lots to you because the cost currently recorded in the accounts would be the net of GST amount.
Subdivision 70-D – Assessable income arising from disposals of trading stock and certain other assets View history reference
Operative provisions
SECTION 70-110
70-110 You stop holding an item as trading stock but still own it View history reference [No equivalent]
If you stop holding an item as *trading stock, but still own it, you are treated as if:
(a) just before it stopped being trading stock, you had sold it to someone else (at arm’s length and in the ordinary course of business) for its *cost; and
(b) you had immediately bought it back for the same amount.
Example 1:
You are a sheep grazier and take a sheep from your stock to slaughter for personal consumption. You are treated as having sold it for its cost. This amount is assessable income, just like the proceeds of sale of any of your trading stock.
Although you are also treated as having bought the sheep for the same amount, it would not be deductible because the sheep is for personal consumption.
Example 2:
You stop holding an item as trading stock and begin to use it as a depreciating asset for the purpose of producing your assessable income. You are treated as having sold it for its cost. This amount is assessable income, just like the proceeds of sale of any of your trading stock.
You are also treated as having bought the item for the same amount, which is relevant to working out the item’s cost for capital allowance purposes (see Subdivision 40-C) and the item’s cost base for CGT purposes (see Division 110).
