The new associated persons rules for land transactions have caused some angst since coming into effect in August 2009. Associated persons rules were initially applied to land transactions in 1973 in response to a perception that developers were treating their activities as investments rather than taxable activities. The 1973 regime survived until August 2009 – and under those rules with a smart accountant it was still generally possible for developers to hold investment properties in a separate entity without tax on the capital gains on their investment properties.
Land dealers, developers and builders who wish to hold investment properties as well as the properties they are dealing, developing or building are in for a much tougher regime from tomorrow. The new Associated Persons rules applying to land transactions are likely to be enacted by parliament tomorrow, which will be the first major revamp in the 36 years since they were first introduced.