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Written by:
Stan Evers


Gains on sale of land liable for tax

The “Box 1income tax rate in addition to comprising operating profit and earnings from employment also accommodates income from miscellaneous activities, such as rendering assets cost-effective in ways that go beyond regular proactive asset management. Examples include the (piecemeal) selling off of immovable properties, the proprietary performance of major maintenance to or sundry refurbishment of a property and the deployment of inside information or of particular forms of know-how.

Several Supreme Court rulings have confirmed that the selling off of moveable properties as such is not tantamount to taxable income being generated. This will only be the case if supplementary activities are performed aimed at achieving reasonably expected gains over and above that which would be regarded as an expected return in the average proactive asset management context. Filing a petition for amending the designated use of a plot would be an example of such a supplementary activity over and above the regular efforts made in a private asset management setting.

This was what occurred when a tax payer sold on the two parcels of land he had previously acquired at a profit as soon as he had had their designated use altered. Together with a project developer he had approached the local authorities to discuss the scope for building houses on his two plots. This had involved an outline building plan being submitted. The land owner had engaged in several rounds of consultations with the local authorities in order to get the zoning scheme revised. Unfortunately for him the District Court failed to buy into his argument that he had divested himself of the plots because on closer inspection the location had been shown not to be suitable for his business. According to the Court, it was plausible that the land owner had been actively involved in the efforts aimed at getting the designated use of the plots altered. The land owner had had a vested interest financially given that a sales price had been agreed for the plots on condition that their designated use was to be altered. The value of the two plots would have been significantly less than the agreed price had their erstwhile designated use prevailed. The change in designated use had been reflected in the agreed sales price.

Dutch version: Winst bij verkoop grond belast

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