Developers – be careful what you wish for, from the outset

This particular case involves a taxpayer who that started off his dreams of jointly developing land for resale at a profit. Things ended up going badly in this process and they ended up selling the properties for a different developer. After all of this, they then tried to claim it as a capital gain.


The taxpayer, the trustee of a trust, acquired two adjoining properties in Brisbane in March 2006 and August 2007. It proposed developing the two properties as part of a joint venture with another large property developer.

Discussions were held between the parties and one email proposed moving the project forward to Developmental Approval stage to achieve the best outcome possible for the site and the partners. However, negotiations broke down and the joint venture proposal came to nothing.

The taxpayer rented out the two properties in their unimproved state. Shortly before their sale in the 2013/14 year, to improve their resale value, the taxpayer obtained a development application (DA) in relation to the properties.

The taxpayer asked for a private ruling in relation to the profit made on the sale of the properties. On the Commissioner’s view, the sale was not simply the realisation of a capital asset, but it was the unplanned end result of a commercial development property development that commenced when the properties were acquired.


Before the AAT, the ATO argued that the taxpayer may have preferred to undertake a comprehensive development in company with other parties, but the evidence in the email, and common sense, suggested from the outset that the taxpayer regarded that the possibility of a profitable resale after obtaining relevant approvals as an acceptable outcome.

On that view, the taxpayer was in the business of acquiring property for redevelopment but without a fixed view on how that redevelopment was going to occur. The AAT member found that the sale occurred in the ordinary course of the taxpayer’s business, which meant that profits generated by the sale should be brought to account as ordinary income.

Ref: NTAA Voice – April 2015 edition

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