increase in value of land during construction stage


Land introduced into a partnership business, and therefore becoming trading stock at a price, rises in value during construction period because of market conditions. If this land had remained a capital asset, the tax would be determined by CGT provisions. Instead, the increase becomes revenue. Yet, the increase is a capital increase, not one that has anything to do with the development (even the price increase due to subdivision only would otherwise be seen as a mere realization). Is there a way that such an inherently capital account gain can remain as such and not become revenue?


Nice argument but no prize. As you seem to be already well aware of CGT is only going to apply up to the market value at the time the property is committed to the project. Fortunately, this market value can take into account the development potential, reference TD 97/1 which is a great ruling for you as it also discusses committing the property to development:

Here is the legislation in black and white
Subdivision 104-K – Other CGT events
SECTION 104-220 CGT asset starts being trading stock: CGT event K4 ITAA 36

CGT event K4 happens if:

(a) you start holding as *trading stock a *CGT asset you already own but do not hold as trading stock; and

(b) you elect under paragraph 70-30(1)(a) to be treated as having sold the asset for its *market value. View history reference

Note 1:
Paragraph 70-30(1)(a) allows you to elect the cost of the asset, or its market value, just before it became trading stock.
Note 2:
There is an exemption if you elect its cost: see section 118-25.

The time of the event is when you start.
104-220(3) View history reference

You make a capital gain if the asset’s *market value (just before it became *trading stock) is more than its *cost base. You make a capital loss if that market value is less than its *reduced cost base.
A *capital gain or *capital loss you make is disregarded if you *acquired the asset before 20 September 1985.
View history note

Sorry I can’t be more helpful.

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