TAX TIP – When does land held for sale count as 'on hand'?
According to S.70-35, all land held for sale at the start and end of the tax year is considered for income and deductions. Land is 'on hand' if the taxpayer has control over it, even if they don't physically own it. Check IT 2670 and rulings like FCT v Suttons Motors Wholesale Pty Ltd and All States Frozen Foods Pty Ltd for more details.
If the taxpayer doesn't control the land at year-end, they can't claim development costs. S.70-15(3) says any expenses for land not yet on hand aren't deductible until it's included in trading stock. For property developers, land stays on hand until it's sold and settled.
How is land held for sale valued?
At year-end, land for sale must be valued at its cost, market value, or replacement value. Market value is what it could sell for to others, but it's tricky for partly developed land. If using market value, it's wise to get a professional valuation for backup during audits. Replacement value means the cost of replacing a similar item, but it's tough for partly developed land.
If you need help, contact Tax Ideas Accountants & Advisers at +61 2 83181545 or book an appointment on our live calendar.
