Developer loses tax case

Press, 27 January 1987, Page 4

Developer loses tax case

PA Wellington A property developer who bought industrial land in Christchurch, but then could not find a tenant for a building he proposed to build on it, has lost his case to deduct rates and interest expenses while holding the land.

Judge Moore, the Taxation Review Authority, decided that, as no rent was derived from the land and no building erected, the property development business never existed and therefore interest and rates were not deductible expenses.

The taxpayer, whose name was not given, had bought the land in 1976 and claimed deductions for interest and rates between 1979 and 1982.

The Inland Revenue Department had disallowed those claims as “not being in production of income under section 104.”

The taxpayer objected on the ground that the land had been available for letting all year. The taxpayer was in paid employment and owned other property investments but was not a property developer by occupation.

Judge Moore said “the purchase of the land was but the first stage of the objector’s plans to go into the business of deriving income from the rental of the land with a building erected upon it. That business did not commence. "It would not have commenced until a tenant had been secured and a building to the tenant’s requirements had been completed and occupied or earning rent “The expenditure on rates and interest was not incurred in gaining assessable income. It was expenditure to retain ownership of a capital asset held to enable the objector to go into business when circumstances permitted. It did not have the character of a working expense.”