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Property and construction

In the property and construction industry, how you classify income from property development may attract our attention.

Last updated 23 August 2022

Where entities have conducted property development, we focus on how they include the profit or income from those activities on their tax returns. A particular focus is how the income should be classified, depending on whether the development was:

  • part of a business of property development
  • undertaken for a profit-making purpose.

Situations that attract our attention include:

  • entities that use an SMSF to fund the development and subdivision of properties leading to sale
  • property that has been disposed of shortly after the completion of subdivision where the amount is returned as a capital gain (refer to TD 92/124)
  • where there's a history of property development or renovation sales in the entity’s wider economic group but the current sale is returned as a capital gain
  • an entity that is a land-owner and has related entities that undertake a property development (refer to TR 2018/3)
  • claiming inflated deductions for property developments that are not in accordance with the trading stock provisions, or spreading headworks and other costs over the inventory in line with the decision in Federal Commissioner of Taxation v Kurts Development Limited [1998] FCA 1037 (Kurts DevelopmentsExternal Link)
  • an entity that undertakes multi-purpose developments with both revenue and a capital purpose, for example an entity that retains units for rent after development (the entity needs to make sure that costs are applied appropriately).