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Advice and Transactional

Taxation issues frequently arise incidentally to other matters in which we have instructions.

If we act for a developer who is buying land and then on-selling to builders, there may be the opportunity to make use of the margin scheme under the GST legislation, thereby reducing the overall tax payable and thus the ultimate cost of homes to consumers.

Section 25A of the Income Assessment Act

If a developer is buying land purchased by the landowner before 20 September 1985 (and thus potentially exempt from Capital Gains Tax), it will be important to know whether the proceeds of sale will be caught by Section 25A of the Income Tax Assessment Act 1936.

Section 25A imposes income tax on any profit on land acquired by the landowner for the purpose of profit-making by sale, and also on any profit arising from the carrying on of any profit making scheme. If the landowner didn't buy the land for the purpose of profit-making by sale (e.g. the property was acquired for its long-term rent returning potential) then it becomes rather important to decide if the land is to be sold as a single lot or if it is to be subdivided by the landowner.

If the latter, a question will arise as to whether this is a profit-making scheme or, alternatively, simply the best realisation of a capital asset. The first alternative attracts income tax, the second does not.

If it can be established that there will be no tax payable by the landowner, obviously the developer is in a position to negotiate a lower purchase price.

Businesses sold as a "going-concern"

If a business is sold as a "going concern" there will be no GST payable. Under the GST legislation there are a number of tests which must be satisfied for a business to be sold as a "going concern", including:

• there must be supply to the recipient (the purchaser) of all things necessary for the continued operation of the enterprise; and
• the vendor must carry on the enterprise until the date of completion of the sale.

However, the GST legislation contains specific definitions of "supply", "recipient" and "enterprise". Tax law is never simple, because those who draft the legislation are trying to be absolutely precise to avoid any loopholes which can be exploited.

Many taxation related issues like the sale of a "going concern" arise time and time again in the course of a transactional legal practice, however other issues will arise only occasionally.

Our expertise

At Stacks/The Law Firm we have a commercial users group which consists of the commercial lawyers across the practice and which meets regularly. In addition we have a conveyancing users group which also meets regularly. The advantage to you is that the legal professional handling your matter, in addition to his or her own personal experience, has access to the knowledge and experience of each member of these groups.

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