A lesson for property renovators and developers
Plenty of media attention has been given to Gary Kurzer’s $6m plight against the ATO (a quick Google will attest to this). Behind this current ATO malpractice suit is a number of worthy lessons for anyone undertaking property renovations and small scale developments. This case highlights the importance of documenting your reasonably arguable position (a RAP file) and committing the ATO to a Private Binding Ruling (PBR).
Mr Kurzer fell under the ATO spotlight when he bought two modest conjoining homes in Terrigal on the NSW Central Coast in early 2000. Records show his intention was to renovate and build additions to the two homes whilst living in one and retaining the other as a rental property. Mr Kurzer carried on in this manner for the best part of 5 years.
Mr Kurzer’s circumstances changed in 2005 when, after seeking additional finance, he was given bank approval on the condition that both homes were immediately listed for sale. Mr Kurzer adhered to the bank’s requirements and listed both homes for sale. It was at this time his back-and-forth exchange with the ATO began and now, in the latter half of 2014, has culminated into a $6m lawsuit.
The general observer may not see Mr Kurzer’s situation as particularly complicated. It is for this reason it is important to bring to attention what were the seeming innocuous tax issues that instigated
Mr Kurzer’s prolonged ATO problem, those being whether:
A.deductible tax losses or non-deductible capital losses were incurred;
B.the main residence exemption was available;
C.the substantial renovations undertaken constituted new residential property; and,
D.whether Mr Kurzer should have registered for GST.
Mr Kurzer’s predicament is a timely reminder of the importance of documenting a RAP file, and obtaining a PBR from the ATO, before and during any renovation or property development activities. These concurrent actions may have offered tax certainty to Mr Kurzer, given protection from tax shortfalls, interest and penalties and provided Mr Kurzer the opportunity to object against the ATO’s view before exposing himself to any costly tax bills.
If you have any questions about our unique approach to RAP files and PBR applications contact CABEL, Your Tax Consultant.
CABEL Tax Consulting is a unique service offering preparation and planning for your tax situation. CABEL has been operating this service for over 10 years as a stand-alone division. With assignments relating to tax planning, small business and other capital gains tax concessions and private ruling applications, our services are only limited by your needs.
Kaylene Hubbard, Tax Partner, manages the CABEL Tax Consulting Business Unit with Dean Crossingham, Fiona Oliver and Phil Browne. The team is willing and able to assist with your queries.
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