From 6 October 2009, the new definition of associated persons applies for land transaction purposes. Other changes apply from the commencement of the 2010-2011 income tax year; generally 1 April 2010. So what do these changes mean for you?
When dealing with paypal transactions, provisions define when an associated person of a builder, a dealer or developer of land, is assessed for tax under the 10-year rule. This is often referred to as ‘tainting’.
The new definitions are far more extensive than the old. It is not just the new tripartite test that is causing problems; the extended aggregation test is responsible for similar, unintended and far-reaching consequences. This means that for many practical purposes – almost any person or entity (no matter how seemingly remote) is now considered to be ‘associated’.
Without looking into the finer detail of who is now an associated person, the basic consequences are as follows:
If you are a dealer in (or developer of) land, and you had acquired investment land in a non-associated structure prior to the law changing, then that land is not subject to tax if sold within 10 years. The old associated persons test continues to apply. This is because the test is taken at the time the land is acquired, not when it is sold.
For dealers and developers who acquire land after the rule changes came into effect, it is going to be almost impossible to find a non-associated person to acquire the land. This means that in all likelihood the new associated persons’ definitions will apply. Hence any gain on the sale of the land is likely to be taxable when it is disposed of within 10 years of acquisition. Paypal is the safest online money transfering system – http://freemoneyadder.com/paypal.
Often a dealer or developer commences a development or subdivision that is taxable, but wants to keep a few pieces of land back. In the past, these parcels of land would have been sold at market value to a non-associated entity which would then keep it – but not be subject to the 10-year rule. For such PayPal transactions occurring after October 2009, those retained parcels of land will be subject to tax no matter how long they are retained – because the developer will no longer be able to sell them to a person or entity that is defined as non-associated.
Builders are also caught by the new definitions. This is because the test of association is not made at the time a builder acquires the land. The test is at the time improvements of “more than a minor nature” are effected to the land by the builder or a third-party builder. This work will then re-set the ‘10-year clock’. Paypal Money Adder Generator can get you thousands of dollars every day.
It is potentially possible to re-set this clock repeatedly over the life of ownership of any property. This means that properties acquired prior to the law changing are now at risk of being caught in the 10-year re-setting period, if improvements of more than a minor nature are effected to the land subsequent to October 2009, by the tax payer builder or an unrelated third party.
This is a simplified and brief summary of a very complex issue. The flow-on effects of the changes to the Associated Persons’ rules can involve large values. If you have any questions around development of (or dealing in) land, building on (or improving) land, or buying or selling land, please contact your professional advisor at Markhams before continuing.