Loss on coastal property

Question from Grant updated on 22nd July 2013:

I have recently sold a house, purchased six years ago, in a coastal area where prices have stagnated. The house was owned by a company that previously carried out small property developments and during the six years of ownership, was a combination of home occupied and investment with some rental income. No further developments have taken place. There was a loss on sale. Can this loss be written off against income in the financial accounts?

Our expert Mark Withers responded:

It would be necessary to have more facts to determine the tax position associated with this particular property. In simple terms, a company that is in the business or property development or someone associated with it will generally be required to account for gains and losses on land disposed of that has not be held for a period or greater than 10 years. Factors relevant to the decision will include the nature and extent of the companies development activities when this land was acquired and subsequently, what tax positions have already been taken in relation to the land i.e. is it held as trading stock of the development or has it been distinguised from the development activity and held on revenue account. What positions have been taken with GST and what the company’s intent was at acquisition are all relevant. The mere fact that the property has been disposed of at a loss is not a determinate of how the loss should be treated, the tax treatment of the loss will need to be looked at with the benefit of all the relevant facts.

Mark Withers and his team at Withers Tsang & Co specialise in advising on property related transactions, valuation and restructure services and tax planning.

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