Here's the deal with pre-CGT land and some tax warnings:

Here's a simpler explanation of what happened in Fortunatow’s case:

Mr. Fortunatow, also known as "the taxpayer," worked as a business analyst through his own company. He got his job contracts from agencies like Hays and RM Walters, who then connected him with big clients like government departments, banks, and others.

He kept his LinkedIn profile updated to show his skills and availability for new projects. Usually, he was hired to do specific tasks within a certain time.

Over two years, his company made around $166,000 and $121,000, but he didn't pay himself a salary or report any income on his personal taxes. Instead, his company paid that money to a family trust as "management fees," which the company claimed as a tax deduction. This way, no one paid taxes on the money earned.

But after the tax office audited him, they said his company didn't qualify as a Personal Services Business (PSB), and they attributed the income to him personally. Fortunatow disagreed and appealed to the Administrative Appeals Tribunal (AAT).

The AAT looked at whether Fortunatow met two tests: the "results test" and the "unrelated clients test." They said he didn't meet the results test because he was paid for his work, not for achieving specific results. Also, they found that he got all his work through agencies, not directly from clients, so he didn't meet the unrelated clients test either.

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The calculation of capital gains tax (CGT) is separate from the net profit calculation we talked about earlier. They're only combined in Step 3 to avoid double taxation. Here's how CGT is calculated:

Passing the other personal service business tests

To pass the other personal service business (PSB) tests, you need to consider the following:

1. The 80/20 Test: Less than 80% of your Personal Services Income (PSI) should come from one source (client or their associates) during the income year (S.84-15(3)).

2. Other PSB Tests: a) Unrelated Clients Test: You must earn income from providing services to at least two entities not associated with each other or with you. These services should result from public offers or invitations, such as advertising or word of mouth referrals (S.87-20(2)).

   b) Employment Test: If entities other than you perform at least 20% of your principal work or you have apprentices for at least half of the income year, you satisfy this test (S.87-25).

   c) Business Premises Test: You must meet several conditions regarding the business premises, including conducting most activities related to PSI from those premises, having exclusive use of them, and ensuring they're physically separate from private premises and client premises (S.87-30).

If you fail both the results test and the 80/20 test, you can seek the Commissioner's determination regarding conducting a PSB (S.87-15(1)(a)).

For further assistance, you can reach out to Tax Ideas Accountants & Advisers at

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Understanding Market Value: When we talk about the "market value" of land, we mean figuring out its highest and best use. Basically, we look at what the land could be used for that would bring in the most profit. Usually, if land can be split into smaller parts (like for building houses), its value goes up.

Step 1: Calculating Net Profit

Watch out: Selling a property you've held for a long time as a rental might not always be considered a regular sale for tax purposes.

Usually, when you sell a property used for renting or investing, it's seen as simply cashing in on an investment (known as 'capital account'), even if you've fixed it up. That's because properties like these are usually bought for long-term purposes, not specifically to make a profit.

But sometimes, selling a property that's been rented out for a while can be seen as part of a money-making plan or business. This usually happens when there's been a lot of building work involved. One case, called August v FCT [2013] FCAFC 85, shows how profits from selling such properties can be seen as part of a money-making plan.

In the August case, the person bought blocks of land over time, renovated some, built buildings on others, and rented them out. Then, they sold them, including one group of shops.

The outcome: It was seen as a money-making plan.

Here's why: The court didn't believe the person's intention was to hold the properties for the long term, mainly because their story about why they bought and sold the shops didn't add up. Plus, there were inconsistencies in their evidence.

If you have any questions, feel free to contact Tax Ideas Accountants & Advisers. You can also book an appointment through our live calendar.

How Selling a Subdivided Backyard is Handled: