Step 1: Calculating Net Profit
Net profit is what's left after you subtract all the costs from the money you made selling the property.
Direct Development Costs: These are expenses directly related to developing the property, like buying the land, getting approval for subdivision, clearing the site, landscaping, and construction costs.
Recurrent Expenses: These are ongoing costs like taxes, interest, vehicle expenses, accounting fees, and staff wages.
These costs are used to figure out the net profit, which gets added to your income when the property sale settles. But remember, you can't deduct these costs right away.
Cost of Land: The cost of the land is a big part of the net profit calculation. If you had the land for the profit-making plan from the start, you use what you paid for it. But if you only started the plan later, you use the land's value when you started. This rule comes from the Whitfords Beach case. So, if you held the land as a regular asset before, you don't use what you originally paid for it; you use its value when you started the profit-making plan. You can check TD 97/1 for more details.
Got questions? Reach out to Tax Ideas Accountants & Advisers at +61 2 83181545 or book an appointment on our live calendar.
