What's the cost of land held as trading stock?
When a property developer buys and develops land, the expenses that aren't immediately deductible become part of the cost of trading stock. Determining this "cost" is crucial for tax purposes. It's deductible under section 8-1, and one way to value trading stock at the year's end is to use its cost.
Though "cost" isn't defined, for valuing land held as trading stock, it's based on a full absorption basis. This includes the purchase price and necessary expenses to prepare the land for sale, like:
- Materials costs (including land cost)
- Direct labor
- Production overheads (like wages and depreciation)
- Infrastructure costs (such as setting up services, roads, parks)
So, are infrastructure costs part of the trading stock's cost?
Infrastructure costs often involved in large property developments include:
(a) Internal infrastructure land: Land where services will be built, often given to the council as a condition for approval. (b) Internal infrastructure work: Costs for roads, sewerage, etc., required for subdivision approval. (c) External infrastructure costs: Payments to upgrade roads, mains, etc., adjacent to the land.
Got questions? Reach out to Tax Ideas Accountants & Advisers at +61 2 83181545 or book an appointment on our live calendar.
