'Hot' property markets in a number of states
have bought the issue of the calculation of taxable profits
It is well established by decisions in cases such as Raymor
and St Hubert's Island that property held for development
and sale is trading stock. This applies to both the small
developer subdividing a residential lot and the large broad
The question that is often asked is what expenditure
incurred on trading stock is an allowable deduction and
therefore provides immediate tax benefits and what expenditure
forms part of the cost of the trading stock.
Taxation Determination TD 92/132 considers the question; if
land is trading stock, do related interest costs, council rates
and land taxes, form part of the cost price? The determination
states that if land is acquired by a business as trading stock,
interest, council rates and land tax incurred on and after the
acquisition of the land do not form part of the cost price
'of trading stock.'. These costs are incurred in
holding the land whether or not it is subject to any future
Provided the requirements of the Act are met, related
interest, council rates and land tax are deductible in the year
in which they are incurred. While draft ruling TR 95/D15 was
subsequently withdrawn following a favourable court decision it
provides further insight into the Commissioner of
Taxation's view on this matter. The draft ruling stated
that the following costs would be treated as outlined:
The following holding costs do not form part of the cost
price of the trading stock and are deductible ... in the year
they are incurred:
Interest on funds borrowed to acquire the
Rates and land tax
Marketing, advertising and selling
The following development costs are absorbed into the
cost price of trading stock:
Professional fees for design work, including
drafting, architectural, engineering and surveying
Council application fees for the
Contribution to the council for off-site upgrading of
Construction of roads.
The following costs form part of the cost price of the
trading stock where they are clearly identified with the
development of the specific project. Otherwise these costs are
deductible ... in the year they are incurred, but are not
reflected in the cost price of trading stock:
Salary and wages to working directors
Motor vehicle expenses
Printing and stationery expenses.
The issue may, on first consideration, appear to merely be
one of timing, but in a time of changing tax rates and with the
potential to take advantage of the old adage, ''tax
deferred is tax saved'', the matter warrants close
consideration when preparing taxation returns. This takes on
even greater importance when the accounting treatment of such
expenditure may differ from the taxation treatment.
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.
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Exemptions or concessions on stamp duty could apply when contemplating the purchase or transfer of NSW real estate.
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