Are you considering subdivision or development of your land, and are wanting to understand the taxation implications of doing so, both from an income tax and GST perspective?
If the answer is yes, then our tax team can certainly assist you in understanding the intricacies of the land taxing provisions.
We have been preparing detailed land taxation opinions and providing advice to people like you for many years, and we cannot stress enough the importance of being pro-active and seeking professional guidance upfront, prior to you taking your first steps down the path of developing and/or subdividing your land into separate titles.
Certainly, the recent changes to the bright-line rules and the deductibility of interest costs which relate to residential land, have added an additional layer of complexity to being able to understand the true costs associated with your proposed undertaking.
However, we are here to help break down all the complexity into easy to understand advice.
Firstly, we will obtain as much background information from you as we consider necessary for the purpose of preparing our taxation opinion. We will ask you questions like how long you have owned the land, the details of your land development or subdivision project (what type of work will be undertaken, how may separate titles do you plan to create from the existing land, what will it likely cost, what is the likely value of the land at both the commencement and completion of your project), and what are your plans once the new titles are issued – will you dispose of the land immediately, or have you constructed new dwellings on each title and plan to rent the developed land for a period of time.
Secondly, we will draft a written opinion for you. Within the opinion we will identify the likely income tax and GST implications associated with your project. We will comment on any available exclusions or exemptions that you may qualify for, and we will provide our recommendations in that regard.
Finally, we will issue our opinion to you in draft form, enabling you to review our advice, and to ask any further questions that you may have. Once we have addressed all your questions, we will then finalise our opinion, providing you with a copy for your file.
Some of the things we have done recently
We have advised a client who was not sure whether the work involved in their two-lot subdivision scheme would exceed the ‘work of a minor nature’ threshold, thereby triggering application of the minor subdivision taxing provision (section CB 12).
We have advised a client who had several different scenarios of what could be done with their land and wanted to understand the income and GST implications associated with each option, and we also provided guidance as to their entitlement to claim the ‘main home’ bright-line exclusion.
While we prefer to provide our guidance in advance of any work commencing on the subdivision scheme, so that the client is fully aware of all the potential implications upfront, unfortunately it does not always work out that way, and often we are asked to assist with Inland Revenue enquiries, where the client has disposed of the land at the completion of the project, have not disclosed any land sales income in their tax return, and Inland Revenue are now asking some “please explain” type questions.
