Australia: Property development and SMSFs – Part 4: Taxation considerations

Last Updated: 23 May 2012
Article by Andrew O'Bryan and Mark Payne

In the third instalment of the four part series on self managed superannuation fund trustees developing property, we discussed the limitations on fund trustees borrowing to develop property and the importance of properly documenting property development arrangements.

In this final instalment, we consider the commercial and taxation drivers of a land development project involving a self managed superannuation fund.

Acquisition of the development land

Stamp duty

Where an entity, being the fund trustee or the trustee for a unit trust, acquires vacant land, the purchase will generally be subject to stamp duty in the normal manner at the transfer duty rates.

If the development land is contributed to the fund as an in specie contribution (subject to ensuring the superannuation law is complied with and the in specie contribution does not give rise to an excess contributions tax liability), the in specie contribution of the development land will be exempt from stamp duty pursuant to section 41(1) of the Duties Act 2000 (Victoria) (Duties Act) if the following conditions are satisfied:

  • the transfer is not for any monetary consideration;
  • the fund is a complying superannuation fund; and
  • there is no change in the beneficial ownership of the development land,

and an application is made to, and accepted by, the Commissioner of State Revenue.

For the purposes of section 41 of the Duties Act, the transfer from a 'beneficiary' of the fund to the fund trustee does not effect a change in the beneficial ownership of the development land.

Importantly, the stamp duty provisions vary from state to state and this exemption only applies where the development land is located in Victoria.

The acquisition of units in the unit trust holding the development land will be subject to transfer duty (5.5%) if the unit trust is 'land rich' and the acquisition (alone or with other acquisitions) amounts to an interest of 20% or more in the unit trust. The unit trust will be 'land rich' if the value of the development land is at least $1 million and the value of all its land (Victorian and elsewhere) is at least 60% of the value of all property of the unit trust.

The Victorian government is replacing the 'land rich' duty provisions with the 'landholder' duty model from 1 July 2012. Under the landholder duty model, the 60% test will be removed so that transfer duty will apply to any acquisitions of interests of 20% or more in a unit trust with land worth more than $1 million. The definition of land is also extended to include anything fixed to the land whether or not a fixture at law.

Although the landholder duty applies in most other jurisdictions, the Victorian landholder provisions penalise investors in unit trusts holding land by retaining the acquisition threshold at 20% rather than moving to 50% as in most other jurisdictions.

Importantly, the landholder provisions will also impose duty on direct or indirect acquisitions of an 'economic entitlement' of 50% or more in a landholder within a three year period. An economic entitlement is defined to include acquiring shares or units in the landholder or entering into an arrangement under which a person is entitled to participate in the income, rents, profits, capital growth or proceeds of sale of the landholder's land or to receive a sum calculated by reference to any such amounts.

This means that property developers and investors in property projects could be liable for duty under the landholder provisions if they are entitled to receive a fee or return calculated by reference to the profits or proceeds of sale of the project.

If the units are contributed in specie to the fund, the contribution should be an exempt acquisition under the 'land rich' and the successor 'landholder duty' provisions if a hypothetical transfer of the land from the member to the fund trustee would have been exempted from duty under section 41 of the Duties Act. In determining whether an interest of 20% or more has been acquired in the unit trust, an exempt acquisition will be counted with any subsequent acquisition of units in the unit trust by the fund trustee or by any member of the fund or other associated persons or entities.

Land tax

Where a fund trustee or trustee for a unit trust acquires land, the entity should be subject to land tax in the normal manner, but able to avail itself of any land tax exemptions.

The fund trustee will not be subject to the land tax surcharge for trusts as complying superannuation funds are excluded from the surcharge. However, the land tax surcharge will apply to the trustee of the unit trust unless the trustee notifies the State Revenue Office of the unit holdings in the trust.

Goods and services tax

The fund trustee or the trustee for a unit trust would normally be required to register for GST when its current or project GST turnover is $75,000 or more. In general terms, the current GST turnover is the GST exclusive value of all taxable and GST free supplies made during the previous 12 months and the projected GST turnover is the GST exclusive value of all taxable and GST free supplies likely to be made during the next 12 months. The fund trustee or the trustee for the unit trust may voluntarily register for other reasons.

Where the development land is contributed to the fund as an in specie contribution, the in specie contribution of the land from a member to a fund trustee will not ordinarily be subject to GST. If the member is not registered (or required to be registered) or the member is registered but the development land is not used in the conduct of an enterprise carried on by the member, there is usually no question of GST applying.

The position is different if the member is registered (or required to be registered) for GST and the development land is used in the member's enterprise. Although there is no consideration for the supply, an in specie contribution to the fund may be a taxable supply because of the associate rules in Division 72 of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (GST Act). However, Division 72 should not apply to the contribution of the development land if the fund is registered (or required to be registered) for GST and the fund acquires the land solely for a 'creditable purpose' (that is, the land is applied to make taxable supplies eg property sales or commercial leasing) (refer to ATO ID 2005/70). Note that Division 72 could still apply if all or part of the land is developed as residential property for leasing.

Although the development land must be 'business real property' to be contributed in specie to the fund, the contribution cannot qualify as a going concern if consideration is not being provided.

Development of the vacant land

Stamp duty

Duty is imposed on a transfer of dutiable property and on certain specified dutiable transactions. Dutiable property includes an estate or interest in land. Dutiable transactions include any transaction that results in a change in the beneficial ownership of such estate or interest in land. A change in beneficial ownership may include the creation or extinguishment of such interests, a change in the equitable interests in land, or land becoming, or ceasing to be, the subject of a trust.

Under a development agreement, the developer generally will not acquire any proprietor interest in the development land (but the developer could acquire an 'economic entitlement' in a landholder company or unit trust in the circumstances explained above), thus legal and beneficial ownership of the development land will be unchanged. On that basis, there is no transfer of any interest in the development land or any change in beneficial ownership of any interest in the land. If the owner of the land is a private company or unit trust, the developer might acquire an 'economic entitlement' in the owner under the new landholder provisions that will apply from 1 July 2012.

Land tax

The developer under a development agreement will not be an 'owner' of the land for land tax purposes . Therefore any land tax liability should remain with the fund trustee or the trustee of the unit trust (as the case may be).

Tax partnership

Where the fund trustee has entered into a development agreement to develop the land, it is important that the parties are not a common law partnership. The reason being that common law partners generally have joint and several liability, which would cause the fund trustee to breach the provisions of the Superannuation Industry (Supervision) Act 1993 (SIS Act) and in particular, the prohibition on charging the fund assets under regulation 13.14 of the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations).

If under the development agreement, the developer is paid a fee for its services, the developer and the fund trustee generally will not be carrying out the development as a general law partnership.

Sale of the developed land

Capital gains tax

Generally, the capital gains tax provisions are the primary taxing mechanism for determining gains and losses for self managed superannuation funds (section 295-85 of the Income Tax Assessment Act 1997 (1997 Act)).

This means that gains or losses on assets (including units in a unit trust and development land) held by fund trustees will be taxed under the capital gains tax provisions. Therefore, the development land or units in the unit trust will be on capital account instead of on revenue account and included in the fund's assessable income. Therefore, the sale of the development land will be a disposal for tax purposes under CGT event A1 (section 104-10 of the 1997 Act) and will result in a capital gain where the market value of the land exceeds the cost base (assuming the development land is a post CGT asset).

Where the entity selling the development land is the trustee of the unit trust, the capital/revenue account distinction will still be relevant. Generally, where the development land is held for the purpose of investment, the land will be on capital account. Where the land was acquired and developed as part of a property development business, the developed land is likely to be on revenue account. This will generally be the case where the trustee of the unit trust intends to sell the developed land and make a profit as part of a business venture, particularly if the acquisition and sale is part of a continuous and systematic practice of engaging in business arrangements of this kind (refer to Taxation Ruling TR 92/124).

Stamp duty

The sale of the development land will give rise to a liability for stamp duty payable by the purchaser. However, the fund trustee or the trustee of the unit trust may utilise the stamp duty concession for 'off the plan' sales for the benefit for purchasers.

Goods and services tax

If the trustee is registered or required to be registered for GST because of the prospective sales, the trustee will be liable to pay GST on the sale of the development land. The margin scheme may be available if the fund trustee or trustee for the unit trust did not acquire the development land by a taxable supply that was chargeable with full GST (ie the margin scheme was not used). There are new rules that apply where the development land was acquired by the fund trustee as a GST-free supply of a going concern, farm land or from an associate, where the vendor or associate paid full GST on its acquisition.


We hope you have found the series on SMSFs and property development useful. We would be interested to hear any feedback or comments you have on fund trustees entering into property development arrangements.

To view the previous updates, click on the following links or search our website:

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.