Land on Capital Account that Undergoes Change of Purpose to be Part of a Property Development Business? (TD 97/1, CGT event K4)
- August 3, 2023
USER
Land on capital account that undergoes change of purpose to be part of a property development business? (TD 97/1, CGT event K4)
Tax Genii (Thought)
I’m looking for the information about “Land on capital account that undergoes change of purpose to be part of a property development business? (TD 97/1, CGT event K4)” in ATO Legislation Database.
Tax Genii (Observation)
I found the following information in ATO Legislation and supporting material:
The query refers to the Australian Taxation Office’s Tax Determination 97/1, which deals with the Capital Gains Tax (CGT) event K4. However, the provided knowledge does not contain any information related to this specific tax determination, CGT event K4, or the change of purpose in property development business. The knowledge instead discusses amendments to the Sales Tax (Exemptions and Classifications) Bill 1992, which include changes to the business inputs exemption and exemptions for goods used in certain circumstances. Therefore, no relevant content or clues related to the query are found in the provided knowledge.
[Reference]
I found the following information in ATO Public rulings:
The query refers to the change of purpose in property development business and its implications on the land capital account, specifically in relation to the Australian Taxation Office’s (ATO) Tax Determination 97/1 and Capital Gains Tax (CGT) event K4. However, the provided knowledge does not contain specific information about TD 97/1 or CGT event K4.
The knowledge does discuss the implications of changing the use of an asset in a business context. If it was reasonable to conclude that the entity would use the asset principally in Australia for the principal purpose of carrying on business, a subsequent change in the place or nature of use would not affect the entitlement to Tax-free Exemption (TFE). However, a balancing adjustment event may arise from such a change.
The first of these two triggers can happen either because it becomes no longer reasonable to conclude that the entity will use the asset principally in Australia or it becomes no longer reasonable to conclude that the entity will use the asset for the principal purpose of carrying on a business.
The balancing adjustment event does not happen if TFE applies under the simplified depreciation rules of Subdivision 328-D of the ITAA 1997 (as modified by section 328-181 of the IT(TP)A). However, if a small business entity chooses not to apply the simplified depreciation rules for an income year, and TFE applies to an asset under Subdivision 40-BB of the IT(TP)A in that year, the consequences of the further balancing adjustment event happening to the asset in a future year will apply.
For more specific information about TD 97/1 and CGT event K4, it would be necessary to refer to the ATO’s official guidelines or consult a tax professional.
[Reference]
Tax Genii
The query refers to the scenario where land on a capital account undergoes a change of purpose to be part of a property development business, specifically in relation to the Australian Taxation Office’s Tax Determination 97/1 and CGT event K4.
While the provided information does not directly address this specific scenario, it emphasizes the implications of a change in the use of an asset in a business context. If it was reasonable to conclude that an entity would use the asset principally in Australia for their core business operations, a subsequent change in the locale or nature of use would not affect the claim for a Tax-free Exemption (TFE). However, such a change may trigger a balancing adjustment event.
There are two conditions under which such adjustment can happen:
- It becomes no longer reasonable to conclude that the asset will be used principally in Australia, or
- It becomes no longer reasonable to conclude that the asset will be used for the primary purpose of carrying on a business.
If a small business entity opts not to use the simplified depreciation rules for an income year and Tax-free Exemption (TFE) applies to an asset under Subdivision 40-BB of IT(TP)A in that year, the further balancing adjustment event’s consequences will apply for the asset in a future year.
However, for specific guidance on TD 97/1 and CGT event K4, it is recommended to refer to ATO’s official guidelines or consult a tax professional.
Please be aware that this information is only a guide and does not constitute formal tax advice.
References:
[ATO Legislation and supporting material](https://www.ato.gov.au/law/view/document?src=hs&pit=99991231235958&arc=false&start=1&pageSize=10&total=191902&num=0&docid=NEM%2FAD92040%2FNAT%2FATO%2F00001&
dc=false&stype=find&df=1870&tm=or-basic-Land%20capital%20account%20change%20of%20purpose%20property%20development%20business%20TD%2097%2F1%20CGT%20event%20K4)
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