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The case scenario depicts Mr. Block and Mrs. Block as the only shareholders and directors of Block Holdings, through which they purchase two properties in an area comprising of extensive real estate development. The properties were used for a horse riding school and generated profit for over seven years and even underwent improvements. However, post the COVID-19 outbreak, a zoning change was proposed whereby the properties were to be disposed of in 100-hectare blocks. Block Holdings managed to subdivide the land into 25-hectare blocks and sold all of them to a single purchaser. In terms of whether the gross receipts would be considered as assessable income, it would be important to refer to Division 9 of the “A New Tax System (Goods and Services Tax) Act 1999 (Cth).” The provisions contained therein state that any disposal of property including real estate would be imposed with the liability of a capital gains tax (Black et al., 2020).
Naturally, the capital gains that Block Holdings made through the disposal of the property would be considered as part of their assessable income based on the amount of CG liability. Furthermore, assets that are held for one year or longer are subject to a 50% discount for individual taxpayers. Since the land was owned by Block Holdings, the principle would not be applicable. Another important area for discussion relates to the failure to comply with the zoning changes as proposed. Zoning changes are usually undertaken at the local government level following the propositions of the government of the Australian Capital Territory through LEPs or Local Environmental Plans. Since Block holdings decided to dispose of the land in 25 hectare lots without adhering to the proposed changes of 100 hectare lots, the transaction would be considered as non-compliant to governmental orders. While the net capital gain or loss would be adjusted as part of the assessable income, the imposition would be based on considering the land disposed off as 100 hectare lots as opposed to the 25 hectare lots.
An example is the adoption of the Montague Precinct Structure Plan by the Port Philip City council in 2012. It led to an industrial zone being rezoned to residential zoning, which led to a substantial increase in the prices thereafter. Similarly, the sale o the land would also be considered in terms of whether adjustments would be required and it could lead to the liability of additional fines on Block Holdings for failing to comply with the zoning orders.
Black, C., Hanegbi, R., Jograjan, S., Krever, R., Obst, W., & Ting, A. (2020). Principles of Taxation Law. Thomson Reuters.
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