You are liable to pay tax on the profit of any properties you sell which were bought as part of your property or building business. Also, you may need to pay tax on properties not purchased as part of your business if you sell them within 10 years.
The 10 year rule
If you sell a property within 10 years of buying it or, in the case of builders, within 10 years of completing improvements to it you may have to pay income tax on the profits. Even if the property was not purchased as part of the business you may still have to pay tax.
Property and associated persons
If you are associated to a dealer, developer or builder or in the building business, for example you're a shareholder of a development company - the specific rules covering buying and selling property in those situations may apply to you.
Associated person rules mean you may have to pay tax on all or some of your property transactions, even if you are not personally a property dealer, developer or builder. Transactions include tax on the sale of property if you had an association with:
a property dealer when the property was bought
a property developer when the property was bought
a builder, or in the building business when significant improvements started on a property.
How individuals can be associated
There are a number of tests used to work out if two persons are associated for land transactions. Under the basic rules you are, for example, associated with:
your spouse, civil union or de facto partner
your children (under 20 years old)
a company you hold 25% or more market interest in (company and individual test)
a company your spouse or children hold 25% or more market interest in (the aggregation rule)
a company where the combined holdings under all these rules totals 25% or more market interest in (the aggregation rule)
a partnership, if you're a partner
If you're a trustee you're associated with:
any settlor of the trust (and vice versa)
a trustee of another trust where the trusts have a common settlor
a person with power to appoint or remove a trustee.
Extended associations
You can be associated to a third person, where you're already associated to a second person under the above rules, and that second person is associated to the same third person under a different rule from the rule that associates you to the second person. This is called the "tripartite" test and usually means that if person A is associated with person B, and B with C, person A is also associated with person C. There are exceptions, particularly in relation to the company tests.
Example: Kim is married to Bruce, a property developer. Kim is settlor and trustee of a trust, which owns all the shares in Kim's family company. So, Bruce is associated to Kim under the two relatives test. Kim is associated to Kim's trust under the trustee and settlor test. Bruce is now also associated to Kim's trust because of his association to Kim as spouse and Kim's association to the trust as settlor. Bruce is considered to hold what Kim's trust holds, which is 25% or more of Kim's company. So, Bruce is associated to Kim's company. Any land transactions Kim's company makes would be treated as if it were being made by a property developer (Bruce's occupation).
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