Understanding Division 43 Write-Off and Property Development
In the tax world, the Division 43 write-off hinges on factors like 'construction expenditure area'. Here's a breakdown:
1. Capital vs. Revenue Expenditure: For Division 43 benefits, expenditure must be capital. If a developer builds for sale (trading stock), it's considered revenue expenditure, excluding them from Division 43 benefits. However, there's an exception in S.43-75(3) if subsequent buyers aren't associates.
2. ATO ID 2014/8 Clarification: The ATO states that developers retaining property originally constructed as trading stock for rentals can claim Division 43 write-offs. S.70-110's deemed sale between unrelated parties satisfies S.43-75(3) conditions.
3. Disposal Outside Business: If a developer sells trading stock outside regular business (e.g., to a family member), S.70-90 applies. Market value proceeds are assessable income.
4. Tax Efficiency Tips: Holding property as a capital asset or ceasing trading stock before disposal can mitigate tax implications. This strategy could qualify for CGT general discounts, depending on ownership duration and entity.
Developers should address these issues early to avoid hefty tax burdens.
For personalised guidance, reach out to Tax Ideas Accountants & Advisers at
+61 2 8318 1545 or schedule an appointment through our live calendar.