June 2017

Are you?
– A taxpayer selling or subdividing land.

At a glance:
– The tax treatment of land and the proceeds from selling it can either have capital gains tax (CGT) or goods or services tax (GST) implications.

You should:
– Determine whether you are selling land as trading stock or as a capital asset.
– Contact us if you require any clarification or advice.

The tax treatment of land and the proceeds from selling it generally depends on whether it’s considered a capital asset or the subject of a business or commercial transaction.

Vacant land is usually considered a capital asset subject to CGT.

However, when land transactions are undertaken as part of a business activity, sale proceeds may be considered ordinary income and be subject to GST.

If you have acquired vacant land either for private purposes or as an investment, it’s usually considered a capital asset subject to capital gains tax (CGT).

If you purchase the land for use in a business activity that deals in land, it’s considered trading stock. In this case, any sale proceeds are treated as ordinary income, and you may need to register for GST.

Land is treated as trading stock for income tax purposes rather than as a capital asset if:

• You have begun a business activity that involves dealing in land; or
• You hold the land for the purpose of resale.

Vacant land that is a capital asset is subject to the same capital gains tax rules as other properties.

The profit from selling subdivided land may be a capital gain or ordinary income, depending on the circumstances.

If you subdivide a block of land such as the land on which you live and sell the newly created block, any profit is generally treated as a capital gain subject to capital gains tax.

For more information, click here.

Remember:
– If you sell any land separately from your home, the land is not exempt from capital gains tax under the main residence exemption.

This article was published on 30/05/2017 and is current as at that date

Are you?
– An employer setting up a salary sacrifice arrangement.

At a glance:
– Employers that set up salary sacrifice arrangements to make donations to deductable gift recipients (DGR) for their employees may have certain tax obligations.

You should:
– Check that the organisation you are giving to is a registered DGR.
– Contact us if you require any clarification or advice.

Employees can arrange for gifts to be made to DGRs under salary sacrifice arrangements. In this situation:

• The employer and employee agree that a certain amount of their pre-tax pay will be paid to a DGR;
• The employee pays income tax on the reduced salary or wages;
• The employer claims the tax deduction for the payment to the DGR, not the employee; and
• These payments are not considered a fringe benefit.

For a salary sacrifice arrangement to be effective, the agreement must be entered into before the employee becomes entitled to be paid the amount forgone as salary or wages.

The employer bases the pay as you go (PAYG) withholding amount on the employees’ gross salary or wage paid which do not include the salary sacrificed amounts.

When preparing the employees PAYG payment summary, they show the gross amounts of all salary or wages excluding salary sacrificed amounts and the relevant total amount of PAYG withheld for the year.

Although workplace giving and salary sacrifice arrangements seem similar, the major difference would be:

• Workplace giving – the employer forwards the donations to the DGR on behalf of the employees; and
• Salary sacrifice – the employer pays the employee a reduced salary and makes a donation to the DGR.

For more information, click here.

Remember:
– The employee is not entitled to claim a tax deduction because it is the employer who makes the donation to the DGR.

This article was published on 30/05/2017 and is current as at that date

Are you?
– A taxpayer building or constructing a residential premises for sale.

At a glance:
– Building new residential premises for sale may have goods and services tax (GST) implications.

You should:
– Show you intend to sell the premises by actively marketing the premises for sale.
– Contact us if you require any clarification or advice.

If you build new residential premises for sale:

• You are liable for GST on the sale; and
• You can claim GST credits for your construction costs and any purchases you make related to the sale.

If GST applies on the sale, you generally pay GST of one-eleventh of the sale price.

If eligible, you can work out your GST liability using the margin scheme, under which your GST liability is one-eleventh of the margin on the sale of the property, rather than one-eleventh of the total selling price.

Residential premises include houses, units and flats that are occupied or can be occupied as residences. It does not include vacant land.

Residential premises are new when any of the following apply:

• They have not been sold as residential premises before;
• They have been created through substantial renovations; or
• New buildings replace demolished buildings on the same land.

Residential premises are generally no longer new residential premises if they have been continuously rented for five years after first becoming new residential premises. In this case, the sale of the property after being rented out is input taxed.

If you claimed GST credits on the construction costs and related purchases but do not charge GST on the sale of the property as it is no longer considered new, you may have to make adjustments that effectively reverse these credits. You are not entitled to GST credits for a input taxed supply.

For more information, click here.

Remember:
– If you rent out the new premises while you are planning to sell them, you’ll need to adjust part of the GST credits you claimed on construction.

This article was published on 30/05/2017 and is current as at that date

Are you?
– A primary producer or landholder.

At a glance:
– Primary producers and other landholders can claim specific deductions for certain capital expenditure.

You should:
– Determine whether costs are deductible immediately, over 10 years or can be included as part of an asset’s cost base.
– Contact us if you require any clarification or advice.

You can claim a deduction for capital expenditure you incur on a landcare operation in Australia, if:

• You are a primary producer;
• You own a business using rural land, except for mining or quarrying; or
• You are rural land irrigation water provider.

Primary manufacturers can claim a deduction in equal instalments over 10 years for:

• Capital expenditure incurred in connecting main electricity or upgrading an existing connection to land on which you conduct a business; or
• Capital expenses incurred on a telephone line on, or extending onto land on which you conduct a primary production business.

A shelterbelt is a line of trees or shrubs planted to protect an area from fierce weather, it can be used to protect crops and livestock, to prevent land degradation and improve biodiversity.

If you establish a shelterbelt on land on which you conduct a primary production business you can claim:

• An immediate deduction for any costs for new fencing or reticulation, such as pipes, fittings, sprinklers, pumps and bores; and
• A deduction for the costs of site preparation, chemicals and trees which are established to fight land degradation.

You cannot claim a deduction for a shelterbelt created for private purpose, such as to protect your own home.

For more information, click here.

Remember:
– Costs not deductible may be included as part of the cost base of the land for capital gain tax purposes.

This article was published on 30/05/2017 and is current as at that date