People who are flipping properties on a regular basis should be wary about whether or not they are classified as being in “the business of flipping property” by the Australian Tax Office.
The Australian Taxation Office’s Adam O’Grady was speaking to Phil Tarrant on a recent episode of the Smart Property Investment Show when he flagged that people who do flip properties on a regular or a recurring basis might be treated differently by the ATO to that of an individual who is extending or renovating a property as a one-off.
As well as highlighting the importance of property investors understanding their tax obligations more generally, the acting assistant commissioner of individuals and intermediaries flagged an example of a scenario where someone might be in the business of flipping property as including “a builder moving into a property with the family, renovating the property and then moving out, doing it to the next property and making regular gains on the property”.
Where an individual is considered to be in the business, “some of the exemptions that would apply to you as an individual when you normally purchase your home and sell your home no longer applies”, Mr O’Grady said.
Unfortunately, the acting assistant commissioner conceded that there’s “no bright line test” that says whether or not a person is in the business of flipping properties.
“It’s one of those things that you need to just look at what is it you’re actually doing,” he considered.
Mr O’Grady has urged anyone who may be in such a scenario - that “if you’re going to be doing this regularly, [or] think it might be a regular thing, even if it’s a first time doing it – talk to your accountant, come and talk to the ATO around what you’re doing, what your structure is, and get that really good advice upfront about what you need to consider and whether or not you are actually running a business”.
“Tax can be complicated”, Mr O’Grady re-iterated.
The business of flipping properties is “one of those ones, which depending on the circumstance, you can be either way”.