Changes to Associated Person Rules Affecting Land Developers, Dealers and Builders

Recent amendments to tax legislation have resulted in major tax changes which will impact on future property purchases by property developers and dealers as well as builders commencing construction, together with associated entities.

The amendments take effect from 6 October 2009 and provide a revised definition of associated persons. These changes widen the tax base and are aimed at those who are associated with persons or entities in the business of building, or dealing in, or developing land. The effect of this extended definition greatly restricts the ability for a builder, developer or dealer to hold property as a tax free capital investment in another entity. There will now be many more taxpayers tainted by association, resulting in investment properties acquired by them being subject to tax on profit when sold.

If a taxpayer is associated with a property developer, dealer or builder and disposes of their investment property within 10 years, they may now be exposed to tax on any profit that might have been considered a capital gain previously.

Please note the following key points:

• Tax law changes will affect property transactions occurring from 6 October 2009
• In some limited circumstances, the changes will affect land which is already held as a capital investment where improvements have been made after that date.
• In most cases the existing structures are unlikely to provide adequate protection from the tax consequences of these changes.
• The changes to the definition of associated persons are extremely wide and it will become much more difficult to design an ownership structure that prevents investment properties being tainted.
• You should take greater care when structuring future property transactions and seek advice prior to undertaking any property transaction

To ensure that you understand the impact of these changes in managing your tax exposure, please contact Michael Turner or Frank Burgess if you wish to discuss your situation.

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Last updated: 5th November 2009 | 10:24 am